If you were wondering, we went two-and-two in our pond hockey tournament last weekend in New Hampshire. The ice was horrible (pond hockey ice usually is) but the company was good, the weather was terrific and the beer, as always, was delicious!
On to the market, it may just be me, but I feel like investors are getting bumped around in similar fashion to people in a busy subway station. Are we coming or going? Are things good or bad?
I mean, clearly the coronavirus is concerning. I had a conversation with a doctor friend the other day and she mentioned that she doesn’t put much faith in the numbers coming out of China. In other words, there are probably way more people with the virus in China than are being reported. That’s not good, and the possibility of a global pandemic will keep you up at night.
On the other hand, the CDC estimates that there have been 22 million to 31 million flu illnesses this season, with 12,000 to 30,000 deaths, just in the U.S. So, when you think about that, it’s probably wise to be more concerned about the flu than the coronavirus.
Back to the market, there’s more good news than bad from my perspective. Employment and hiring are good, the lessening of tariffs on $75 billion worth of U.S exports to China is good, interest rates remain low (many economists see a rate cut coming too) and there are plenty of good earnings reports to get excited about.
In short, the best thing to do is more of what we’ve been doing without getting too worked up about what’s good, bad or neutral.
Try to stay in tune with the market, hold on to stocks that are racing higher (but not buy too much more), trim positions that are faltering, and look for buying opportunities in stocks showing technical strength and strong fundamentals, but which aren’t too hot to touch.
This week we had two companies report. ModelN (MODN) released results earlier in the week and I detailed those in a Special Bulletin. Construction Partners’ (ROAD) reported this morning, and I share my view on that report below.
Changes This Week
AppFolio (APPF) moves to Hold
Construction Partners (ROAD) moves to Sell
Updates
AppFolio (APPF) continues to trade at all-time highs as investors look forward to accelerating growth (forecasted to be up 37% in 2019) and solid EPS growth (adjusted EPS expected to jump from $0.56 in 2018 to $0.93 in 2019). Shares are up 4% over the last week. We don’t have an earnings date yet. With the stock having now run almost 30% above its prior high from last summer I’m moving back to hold. We’re up 350%. HOLD
Arena Pharmaceuticals (ARNA) has come to life and moved up more than 15% over the past week. One piece of encouraging news: The FDA has granted Fast Track designation to Arena’s APD418 (in Phase 1 clinical investigation – data expected later in 2020), which is being investigated for treatment of decompensated heart failure (DHF). DHF is expected to drive roughly 10 million hospital visits in the U.S. by 2025 and there are few treatment options. Also notable is that JP Morgan just upgraded Arena to Overweight on higher conviction thanks to a “… catalyst rich 2020-2021 coupled with pullback …”. I couldn’t agree more! BUY
Avalara (AVLR) reports next Wednesday. We’re looking for 30% revenue growth (to $100.1 million) and a 53% reduction in EPS loss (to -$0.09). That implies revenue would be up 37% in 2019 and the EPS loss would fall from -$0.67 in 2018 to -$0.14 in 2019. Following the earnings report management moves into conference mode, including Goldman Sachs (2/13), JMP Securities (2/24), Morgan Stanley (3/2), and KeyBanc (3/3). BUY
Earnings Date: Wednesday, February 12
Cardlytics (CDLX) reported huge preliminary Q4 2019 results a few weeks ago and the stock just went on another tear yesterday, pushing shares up 9% over the last week and 143% since we jumped in back in September. It’s a hot one, for sure. HOLD
Construction Partners (ROAD) reported Q1 fiscal 2020 results this morning that beat on revenue and met expectations on EPS. Revenue was up 13.6% to $175.3 million (beating by $3 million) while GAAP EPS came in at $0.11. Management also maintained its full-year 2020 outlook for revenue of $830 million to $870 million, implying 6.4% to 11.5% revenue growth. While the results were slightly better than expected shares are trading down a few points today. This is the second consecutive quarterly report that’s been followed with a weak response in the stock, a dramatic change from the uptrend that ROAD enjoyed throughout 2019. With shares back near our entry point and not a lot of enthusiasm from investors, it’s time to walk away. There are other opportunities to pursue and for now Construction Partners will return to my watch list. SELL
Earnings: Done
Domo (DOMO) is flat again this week on no new news. We’ve come up significantly from the bottom but are still down quite a bit from where we entered the position. Patience has benefited us so let’s continue to hang on. HOLD
Everbridge (EVBG) continues to run higher into its earnings report (up 3% this week), which comes out on Tuesday. Analysts see revenue up 34% to $56.2 million and adjusted EPS of $0.04. As I mentioned last week there’s potential for the company to be profitable in 2020. The company’s platform was used at the Super Bowl. BUY
Earnings Date: Tuesday, February 18
EverQuote (EVER) will report a week from Monday and with the stock trading at a new all-time high today (it’s up 12% since last week and 252% since June) there’s no doubt the stakes are high. Analysts have been underestimating the company, which has blown past estimates and moved the stock far above analyst price targets. But that’s what happens when nobody knows how to value the business because new initiatives are overdelivering. Will they do so again in Q4? That’s the million-dollar question. As it stands now analysts are expecting Q4 revenue to climb 71%, to $68.2 million, and adjusted EPS to improve by 80% to a loss of -$0.06. Full-year revenue is seen up 50% to $240 million and adjusted EPS loss is expected to fall to -$0.31 from -$0.55. HOLD HALF
Earnings Date: Monday, February 24
Goosehead Insurance (GSHD) is still trading at all-time highs a week after delivering preliminary Q4 results that keep the bull thesis intact (revenue up around 37%, written premiums up 45% and above management’s guidance). As I wrote last week it will be interesting to see how these 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), while EPS climbs from around $0.40 in 2019 to around $1.10 in 2021. BUY
Health Catalyst (HCAT) has been both volatile and disappointing since we jumped into the stock in December. As a recent IPO (HCAT went public last July) we knew shares could be volatile but the precise timing of our entry point (right before a December selloff) was unfortunate, and unexpected. With shares down 20% from our entry point we’re close to moving the stock to hold. But these types of stocks can also go on insane rallies (look at HCAT from October through early-December) and with earnings expected this month we could get a catalyst. Keeping at buy for now. No earnings date announced yet. BUY
Inspire (INSP) reports two weeks from next Tuesday. Analysts see revenue up 43% to $23.8 million and an adjusted EPS loss of -$0.41. We are expecting 100% Medicare coverage across the U.S. for Inspire Therapy by mid-to-late 2020. We’re up around 30%. HOLD
Earnings Date: Tuesday, February 25
Luna Innovations (LUNA) is our newest stock having just been added yesterday. As discussed in my report the company specializes in fiber optic sensing, test and measurement solutions for the aerospace, transportation, civil engineering and communications industries. One thing I found interesting today was news of Trump’s proposed spending bump of 12% for NASA in 2021. There is clearly momentum for space travel, exploration, habitation, etc. and it is a foregone conclusion that a lot of technological innovation needs to happen in order to make this all possible. Fiber optic sensors aren’t going to put people on the moon again, but they’re certainly going to be part of the package that gets people in and out of space safely. How much of that business will go to Luna is totally up in the air, but you can bet the company will be competing for its fair share. It’s a tiny company with a good amount of risk but if it’s up your alley a reasonable-sized position could be worth it. BUY
ModelN (MODN) reported this week and I sent out a Special Bulletin detailing the quarter yesterday. Shares remain at buy. MODN is essentially unchanged over the last week and the quarter indicated that the transition to the SaaS business model is tracking as expected. Management appears to be leaving room to over-deliver in the coming quarters. BUY
Earnings: Done
Q2 Holdings (QTWO) remains at buy with the stock trading 8% off all-time highs, despite a 4% dip over the last week. Earnings come out a week from Wednesday. 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) was flat this week as the stock has failed to punch through resistance at 66 (the all-time high) so far in 2020. Will Monday’s earnings report be the catalyst? It’s risky to buy the day ahead of earnings but the trends with RPD have been strong so I’m expecting a good report. 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) hit an all-time high earlier this week then pulled back and now sits right at its 50-day line. We now have an earnings date (February 20) when we’ll find out if analysts are right to expect revenue growth of 40% in 2019 and EPS growth of 50% (to $1.03). Keeping at buy but suggest only adding smaller positions. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
