The message this week is to stay invested but don’t go crazy on the buy side and don’t get scared on the sell side. Just be measured and try not to do anything that’s uncharacteristic of what you would do in a “normal” market.
We all know the market has raced higher and that’s causing a lot of investors to look around for signs of complacency. You can find them if you look and listen hard enough. But just because some random guy, or girl, was talking about stocks doesn’t mean the market is going to tank.
In fact, as I laid out last week there is a strong argument for small caps to go higher. And back to the broad market, there’s been essentially no impact from the impeachment trial or the fear of the coronavirus spreading. The market has wanted to go higher, so it has.
On the flip side, when you look at individual stocks there are many, many examples of stocks that seem to have run a little too much. Our goal is to try to avoid buying those now. But if we already own them, there’s not necessarily a good reason (at present) to sell. Just hold on.
Earnings season is ramping up and with it will come refined estimates for 2020, which are likely to drive stocks in the near term. In our portfolio, earnings season won’t really hit until the week after next, then it will start to get intense.
Overall, our bullish tilt has paid off. From my perspective I’m feeling encouraged about the way 2020 is shaping up and expect that, by and large, the management teams for our companies will have good things to say about Q4 and the year ahead. That doesn’t mean we couldn’t see a dip or a even a good-sized pullback in the near-term. But it does mean I expect to continue to lean bullish and look for opportunities to jump on stocks that should benefit from what’s looking like a relatively strong economy for the foreseeable future.
I don’t have any changes this week.
Updates
AppFolio (APPF) specializes in software for real estate and law offices and has been running free in 2020 (up 15% YTD) after breaking out above 110. It’s up another 3% this week on no new news. Earnings are always anticlimactic with this company because management says the bare minimum. But the results are always almost good, which is why the stock has been such a strong performer for us. On that note, in Q4 2019 analysts currently see revenue up 32% to $66.6 million and EPS of $0.03. That implies 2019 revenue growth of 37%, to $260 million, and adjusted EPS growth of 66%, to $0.93. Keeping at buy just a little longer. BUY.
Arena Pharmaceuticals (ARNA) is still moving sideways on no news. This continues to be a long-term play and I expect more action in the stock as we progress into the middle and then back half of the year. Stay patient. BUY.
Avalara (AVLR) is our sales tax automation software specialist and one of the cleanest and easiest to understand stories in our portfolio. In a nutshell, sales tax automation is still computed manually in many instances and it’s a huge time suck fraught with error-prone processes. Automating it is a given, and Avalara is one of the leaders in the industry. That means a lot of room for long-term growth. The company just announced 17 more integrations with ERP, CRM, point-of-sale and ecommerce software applications. Analysts expect 30% revenue growth in Q4 2019, to $100.1 million, and adjusted EPS of -$0.09, a 53% improvement over the comparable quarter in 2018. For the full year expect 36% revenue growth, to $370 million, and adjusted EPS of -$0.14. BUY.
Earnings Date: Wednesday, February 12
Cardlytics (CDLX) has forged relationships with financial institutions to use their purchase data in a marketing platform that’s hosted within banking and credit card channels, including Chase, Bank of America and Wells Fargo. The company already released preliminary Q4 2019 results, which is why the stock is up almost 40% YTD. Keep holding. Official results are due out in March. HOLD.
Construction Partners (ROAD) remains at hold as it moves sideways. The road construction specialist is expected to report on February 7, when analysts are looking for revenue to grow 11% to $171 million and EPS to jump 10% to $0.11. FY 2020 revenue is seen climbing 6% to 11%. HOLD.
Earnings Date: Friday, February 7
Domo (DOMO) continues to climb back and is up 3% over the last week and 18% in 2020. The stock just jumped out to multi-month highs. Earnings aren’t due out until early-March, roughly a week before the company’s Domapalooza user conference. The business intelligence company reset expectations lower in September and, based on the last quarter, appears to be doing better than feared. HOLD.
Everbridge (EVBG) was a big idea—threat management and response software for companies, countries, states, cities, etc.—that we jumped into soon after IPO in 2016 and which is up 470% since, including 13% in 2020. That said, EVBG is still 15% below all-time highs and has some resistance around the 89 level. I think it can punch through and run back to 104 and beyond, so keeping at buy. In Q4 revenue is seen up 34% to $56.2 million while adjusted EPS should be $0.04. Incidentally, that positive EPS number should be the first in many years and cap off a year when revenue is up 36% and EPS loss was slashed more than in half, to -$0.23. Could Everbridge turn a profit in 2020? It will be close. Current consensus is for an EPS loss of -$0.09. But it’s early. BUY.
Earnings Date: Tuesday, February 18
EverQuote (EVER) runs an online insurance comparison/brokerage website and clearly the market is trying to figure out if this is the real deal, or not. Shares have been surging because of huge beats in recent quarters. That’s been great for us, but tall trees catch a lot of wind and management needs flawless execution at these levels to keep the stock chugging higher. On that note EverQuote just announced a senior management hire in the engineering and marketplace role with David Brainard from Wayfair and Liberty Mutual stepping in as EVP. Quarterly results are due out around February 18 when analysts are looking for revenue to climb 71%, to $68.2 million, and adjusted EPS to improve by 80% to a loss of -$0.06. That implies 2019 revenue would grow 47% and adjusted EPS loss falls to -$0.31 from -$0.55. HOLD HALF.
Goosehead Insurance (GSHD) is our other insurance stock and continues to consolidate in the 38 to 51 range. There’s no new news. BUY.
Health Catalyst (HCAT) specializes in data and analytics solutions for healthcare organizations and has been up and down lately. Lockup expiration came and went this week. We don’t have an official earnings date yet but I’m expecting results to be out in mid-February. Keeping at buy. BUY.
Inspire (INSP) specializes in solutions for Obstructive Sleep Apnea (OSA) and is seen growing revenue by nearly 60% in 2019. The stock was moved to hold a couple weeks ago after an extended run. Keep holding. INSP is up 37% since we jumped in back in October. HOLD.
ModelN (MODN) helps customers in the life sciences and technology industries maximize their revenue, find growth opportunities and cut compliance risk. It has been transitioning to a subscription business model (SaaS) and converting major clients (Gilead, Novo Nordisk, etc.) over, which is a roughly twelve-month process. For that reason the numbers are a little wonky. For instance, revenue was up 18% in 2018 and EPS jumped from a loss of -$0.59 to $0.04. But in 2019 revenue was down 9% while EPS soared 450% to $0.22. This is all part of the transition to the new business model and things will level out. Looking to FY 2020, analysts see revenue up around 8%, then 11% in 2021. First quarter fiscal 2020 results are due out on February 4. BUY.
Earnings Date: Tuesday, February 4
Quanterix (QTRX) was sold a couple weeks ago. No new news. SOLD.
Q2 Holdings (QTWO) is our digital banking stock and keeps chugging higher. Shares are now just 5% below all-time highs. There’s no official earnings date yet (expected around February 8). When it comes analysts expect Q4 revenue will have jumped 32% and adjusted EPS will have grown 12%, to $0.09. Keeping at buy. BUY.
Rapid7 (RPD) is our cloud-based security stock and has come roaring back from its October low. Earnings are due out on February 10, when the market is looking for revenue growth of 28% to $88.2 million and adjusted EPS of -$0.01. That would mean full-year 2019 growth of 31% and Rapid7’s first full year of positive EPS, near $0.04. Keeping at buy as the stock still has room to go to get to its 52-week high. BUY.
Earnings Date: Monday, February 10
Repligen (RGEN) broke out to new all-time highs above 100 last week and remains near record levels today. As I mentioned last week the pure-play supplier of bioprocessing products for the life sciences market should grow near 40% in 2019 and deliver EPS growth near 50% (to $1.03). Next year, 2020, is expected to be a “normal” year of 10% to 15% growth, but don’t be surprised if that represents management’s low water mark and better-than-expected performance plus an acquisition or two boosts the growth rate. Look for results around February 20. BUY.
Veracyte (VCYT) was sold two weeks ago and continues to trade in the same range it’s been in since July. No new news. SOLD.
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
