Cabot Small-Cap Confidential Weekly Update
I wasn’t expecting that of the seven companies we had reporting Monday through Thursday this week that the average gain would be nearly 9% though. What an intense week. As you’ve no doubt noticed, our portfolio has done well this week.
Last Friday I wrote that last week “was the most encouraging week in a long time” and that we could “lean a little more bullish.”
I wasn’t expecting that of the seven companies we had reporting Monday through Thursday this week that the average gain would be nearly 9% though. What an intense week.
As you’ve no doubt noticed, our portfolio has done well this week. Top honors go to EverQuote (EVER), which is up an astounding 47% since last Thursday’s close.
As one subscriber wrote, “It’s been a while since I’ve had the feeling, but now I remember what can happen to a company when there is a paradigm shift.” Nailed it.
We also benefitted from a 25% pop yesterday in Quanterix (QTRX), which is up 13% from last Thursday, and an 11% gain in Everbridge (EVBG).
Next week will be calmer with just Cardlytics (CDLX) reporting on Tuesday. I’ll have an update on that for you after the event. Today I have an update on Arena Pharma (ARNA), which gave a pipeline review last night.
Beyond that there’s not a lot of new info today as most of what’s happened has already been discussed.
Have a good weekend!
Changes this week
Avalara (AVLR) moves from Hold to Buy (via Special Bulletin)
EverQuote (EVER) moves from Hold to Buy (via Special Bulletin)
AppFolio (APPF) reported last Monday and there’s been no news since. I did see that competitor RealPage (RP) was down 10% yesterday after reporting but haven’t had a chance to get into details yet. AppFolio was up 6% this week. HOLD.
Arena Pharmaceuticals (ARNA) gave a business update yesterday afternoon and as expected it was all about pipeline progress and only featured incremental updates. Bigger developments are expected to occur later in 2020. Here’s what’s going on now, along with current estimated chances of success (they go up as potential treatments progress through trials):
-Etrasimod 2mg in Ulcerative Colitis (UC): The ELEVATE UC 52 Phase 3 trial began in June and enrollment is progressing nicely, with enrollment in the ELEVATE UC 12 trial expected in the second half of 2020. Expected chance of success here is around 80%.
-Etrasimod in Crohn’s: The CULTIVATE Phase 2/3 trial is expected to begin by the end of 2019 with around 225 patients and dosing of both 2mg and 3mg. The reason for the dual dosing stems from data in the ulcerative colitis (UC) trial and management says Crohn’s is harder to treat so the higher dose may be more effective. The trial is designed to move subjects from the Phase 2 into the Phase 3. Expected chance of success here is around 45%.
-Etrasimod in Atopic Dermatitis (AD): The ADVISE Phase 2 trial has begun with dosing of first patients occurring in October. Expected enrollment is around 120 patients with moderate-to-severe AD and the primary endpoint is change in Eczema Area and Severity Index (EASI) after 12 weeks. Data should come out in the second half of 2020. Expected chance of success is around 20%.
-Olorinab in Irritable Bowel Syndrome (IBS): The Phase 2 study continues to enroll and we should start to get data in the second half of 2020. Expected chance of success is around 20%.
-New indications: Management is expected to reveal two more indications that etrasimod could treat at some point in the coming months.
-Ralinepag: Licensed to United Therapeutics for PAH and in Phase 3 trial. Expected chance of success is 80%.
All in, Arena management believes etrasimod has a total addressable market of roughly $50 billion in its three main indications, and with a once-a-day oral treatment it could capture a decent amount of it. No guarantees, of course, and still a lot of work to be done. But as we get into 2020 and investors realize that major data releases are due within the calendar year the stock could begin to move again. Stay patient. BUY.
Avalara (AVLR) reported this week with good results and conservative guidance. The stock has been a little weak afterwards, but I think it’s a buying opportunity. I moved back to buy in Wednesday’s Special Bulletin, in which I detailed the report. BUY.
Cardlytics (CDLX) reports Tuesday. Analysts see revenue up 45% to $50.1 million in Q3 while EPS should stay flat at -$0.15. For the full year, revenue is seen rising 27%. BUY.
Announced earnings date: Tuesday, November 12
Construction Partners (ROAD) is our latest addition and with more of a GARPy profile represents a slight detour from the higher growth strategy we’ve taken with other positions. GARP stands for Growth at a Reasonable Price, which is a fancy way of saying a stock has a little growth and a little value mixed together. It’s a good strategy and one you’ll find deployed in a lot of highly focused small- and mid-cap mutual funds. These stocks can often deliver growth stock-like returns.
If you missed the Issue, Construction Partners, also known as CPI, is a vertically integrated pure-play roadway construction and maintenance company operating in the southeast U.S. The company works on both public (70% of revenue) and private (30% of revenue) infrastructure projects, including highways, roads, bridges, airports and commercial and residential developments. Management says it expects to grow organic revenue in the high single digits to low double digits, and add to that through acquisitions, from which it expects to pull out costs while adding scale. The company is on pace to deliver revenue of $800 million this year, implying 18% top-line growth. Expected adjusted EPS is $0.86. In 2020 analysts see 8% revenue growth (to $860 million) and 14% EPS growth (to $0.98). I expect unannounced acquisitions will ultimately boost 2020 results. BUY.
Estimated earnings date: December 10
Domo (DOMO) is still moving sideways on no news. HOLD.
Estimated earnings date: December 6
Everbridge (EVBG) reported Monday and I detailed the results in a Special Bulletin while keeping the stock at hold pending performance over the next week or so. Since reporting EVBG has held on to a good portion of its gains but hasn’t moved higher. Keep Holding. HOLD.
EverQuote (EVER) knocked it out of the park on Monday and shares blasted off, rising over 40% since last Thursday’s close and bringing our total gain to 155%. I moved back to buy thinking there will be some follow through (which there has). That said, I expect this is a short buy window as expectations are very high now. BUY.
Goosehead Insurance (GSHD) reported last week and took a hit soon after but has been stable since. I said it was a buying opportunity and am standing by that. BUY.
Inspire (INSP) reported Tuesday and delivered the goods, keeping the stock at Buy. I detailed the results in a Special Bulletin. BUY A HALF.
Q2 Holdings (QTWO) reported Wednesday and I gave a review via Special Bulletin yesterday. The stock was a little wobbly after hours Wednesday but snapped back yesterday morning after more details on the PrecisionLending growth rate and fit were discussed on the conference call (held yesterday morning before the market opened). Keeping at Buy. BUY.
Quanterix (QTRX) crushed it Wednesday evening and shares shot 23% higher. I covered the report in a Special Bulletin, in which I cautioned that given the volatility here we should keep at hold and see if there’s any follow through before adding to positions. HOLD HALF.
Rapid7 (RPD) reported Tuesday and did well though I’m keeping the stock at Hold since the stock’s reaction was muted. No change. HOLD.
Repligen (RGEN) reported last week and I’ve kept at buy since I like the stock, believe it’s a scarce asset, and see shares going much higher long-term. They were up 2% this week. BUY.
Veracyte (VCYT) reported two weeks ago and took a hit after the event, but has clawed its way back above 20. There is somewhat of a pattern of lower highs and lower lows developing here, though the spike to 28 ahead of earnings does stand out as a positive. Still, I want to play this conservative. If we see shares move back near 20, we’ll likely step aside. HOLD.
Please email me at firstname.lastname@example.org with any questions or comments about any of our stocks, or anything else on your mind.