Every year for the last six years I’ve joined up with a group of my best college friends from the University of Vermont to play in the New England Pond Hockey Classic in Meredith, New Hampshire. We usually play on Lake Winnipesaukee, where the organizers clear off enough ice and set up enough boards for 25-plus rinks.
I think it was in 2016 when there wasn’t enough ice on Winnipesaukee, so we played on Lake Waukewan instead. Waukewan is a small lake that flows into Winnipesaukee. That worked out great for us as we could skate to our games from just beyond the front steps of our house.
The ice is a little thin this year, but we’ll be on Winnepesaukee starting tomorrow morning. All the vendors, cars, beer garden and other fun stuff will be kept off the ice, however. As I said, the ice is a little thin.
I’m headed north this afternoon to get prepared for our two games tomorrow. This is all a long way of saying this week’s update is coming a little early!
As far as the market goes, there’s no doubt this coronavirus has thrown a wrench into things. But if it wasn’t the coronavirus, it would have been something else. Not that I want to downplay the potential impacts of the virus – like most people I find it more than a little alarming how these things pop up and spread. And it doesn’t exactly make you excited to go out and explore the world with your family and friends.
Already the numbers show that in just a couple weeks the outbreak has infected more people in China than SARS did during its nine-month outbreak in 2002 and 2003.
Ultimately, SARS infected 8,089 people worldwide. The numbers I saw this morning suggest the coronavirus has likely surpassed that. On the upside, the global response has been swift and dramatic. Hopefully that helps keep as many people as possible from being exposed.
In terms of the market, it’s tough to make any comparisons about what could happen now as a result of the coronavirus by looking back at what happened in 2002 and 2003 as a result of SARS. Back then, the market was in the depths of the post-dot-com bubble market crash. Literally. The market bottomed during the exact same window of time that SARS struck. Then it went on a five-year rally that took it back to record highs.
If you want to read into that, be my guest, but I wouldn’t advise it!
Rather, let’s keep one ear to the ground related to coronavirus and the other peeled to what’s going on with companies that are reporting results. The latter lets us know what the longer-terms trends are doing and, barring a full-fledged, multi-continent outbreak, are more likely to drive stock prices in the near-term.
In terms of earnings reports the numbers from the big tech companies have been impressive, to say the least. They suggest to me there’s still plenty of gas in the tanks of our software companies too, many of which are currently rated buy.
There are no ratings changes today, but we did have one company report preliminary earnings and I’ve included a brief update on it (hint: the stock is up!).
Updates
AppFolio (APPF) is still cranking higher and, just based on the chart, the stock looks extended. The counter argument to this is that revenue is accelerating (estimated to grow 37% in 2019 versus 32% in 2018) and the company’s profit spigot is opening (adjusted EPS expected to jump from $0.56 in 2018 to $0.93 in 2019). Also, because the stock’s been through some ups and downs APPF only recently opened up the gap from its September 2018 high of 91.49. It’s also trading with an EV/forward revenue multiple of 13.4, which isn’t cheap but also isn’t in nosebleed territory, especially given the improving fundamentals. This is all to say that I’ll keep it at buy a little longer. BUY.
Arena Pharmaceuticals (ARNA) is still moving sideways on no news. BUY.
Avalara (AVLR) is our sales tax automation software specialist and reports a week from next Wednesday. No news. BUY.
Earnings Date: Wednesday, February 12
Cardlytics (CDLX) remains a hold as the stock still trades near all-time highs a few weeks after reporting huge preliminary Q4 2019 results. HOLD.
Construction Partners (ROAD) is expected to report a week from Friday, 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) is flat this week on no news. HOLD.
Everbridge (EVBG) has just broken out to multi-month highs above 89, which increases the odds of another run back over 100, and beyond. Earnings are due out two weeks from Tuesday when analysts see revenue up 34% to $56.2 million and adjusted EPS of $0.04. There’s potential for the company to be profitable in 2020. BUY.
Earnings Date: Tuesday, February 18
EverQuote (EVER) is still trading near all-time highs. We now have an earnings release date of February 24. 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 would fall to -$0.31 from -$0.55. HOLD HALF.
Earnings Date: Monday, February 24
Goosehead Insurance (GSHD) surprised us this week by releasing preliminary Q4 results that keep the bull thesis intact. As in prior quarters the trend is toward more growth in the franchise channel, which means a delay in revenue growth as Goosehead will make more when these policies renew than when they are first placed. Still, revenue was up around 37% in Q4, meaning 2019 revenue will be up 39% to 40% when the numbers are finalized. Written premiums climbed 45% to $196 million in Q4, bringing full-year premium growth to 45%, or $739 million. That’s above management’s guidance for $730 million. It’s going to be extremely interesting to see how the numbers play out in a few years when all these policies placed through the franchise channel renew. It should mean revenue growth in the mid-30% range (potentially higher), with EPS climbing from around $0.40 in 2019 to around $1.10 in 2021. The stock has broken out to all-time highs. I’m keeping at buy provided the stock can continue to climb in the coming days. BUY.
Health Catalyst (HCAT) isn’t doing much and we don’t yet have an earnings date, though I’m expecting results to be released around February 18. Keeping at buy. BUY.
Inspire (INSP) took a big dip on Tuesday but bounced back by the end of the day and seems to have regained form yesterday. The catalyst was a bearish call by Oppenheimer. Frankly, I’ve never taken action based on public comments from the firm. I’m more interested in what Inspire’s management team has to say when it reports on February 25. Analysts see revenue up 43% to $23.8 million and an adjusted EPS loss of -$0.41. HOLD.
Earnings Date: Tuesday, February 25
ModelN (MODN) has been sliding for the last three weeks and with our entry point of around 35 we’re now down just over 10%. I don’t see this trend as overly concerning, however. The stock’s been strong and the underlying trends look good. Earnings come out on Tuesday and that will define what the stock does next, and by extension, what we do. Keeping at buy. Analysts see revenue up 6% to $37.7 million and adjusted EPS doubling, to $0.06. Remember, the company is transitioning to the SaaS business model so there are a lot of moving parts here, but in the big picture it’s a good move. BUY.
Earnings Date: Tuesday, February 4
Quanterix (QTRX) was sold a couple weeks ago. No news. SOLD.
Q2 Holdings (QTWO) is our digital banking stock and benefits from growing demand for mobile and web-based banking solutions. Financial institutions turn to Q2 to stay competitive and relevant, and the company wins against incumbents Fiserv and Fidelity National Information because it was born as a SaaS platform and keeps rolling out, and acquiring, products that customers want. We have an earnings release date of February 19. Analysts expect Q4 revenue will have jumped 32% and adjusted EPS will have grown 12%, to $0.09. BUY.
Earnings Date: Wednesday, February 19
Rapid7 (RPD) is trading 8% below all-time highs and remains at buy heading into earnings on February 10, when the market is looking for revenue growth of 28% to $88.2 million and adjusted EPS of -$0.01. BUY.
Earnings Date: Monday, February 10
Repligen (RGEN) is still at all-time highs and remains on my buy list. Revenue should grow near 40% in 2019 and EPS should jump 50% (to $1.03). BUY.
Veracyte (VCYT) was sold two weeks ago. No news. SOLD.
