If there was any question about how the market would react to a change in leadership at the top of the U.S. political system the last two days are offering a convincing answer – a Democratic win isn’t likely to be met with a big market retreat.
I won’t go into all the pros and cons of Kamala Harris as Biden’s VP choice. You can read about all that from much more knowledgeable people. I’ll just say that from what I’m seeing she seems to be about as market-friendly an option for the Democratic ticket as investors can hope for in the current environment.
Surely there are other factors driving growth stocks up in the 48 hours or so (a better-than expected jobless claims number being one) since the announcement. But I’m finding a hard time coming up with something else that is of similar potential significance.
On to our portfolio. With most of our companies having now reported we are turning our attention back to the longer-term future. For the most part, earnings from our companies were good and we’ve only made a few incremental ratings changes here and there.
Reactions to the reports has been mixed. And over the last week our stocks are slightly down, on average. Given where they’ve been, I don’t think that’s cause for concern. Some of these stocks have gone up so far so fast that a period of consolidation/turbulence/pullbacks is to be expected.
The next big event for us will be this afternoon’s earnings report from new addition Accolade (ACCD). As I tried to make abundantly clear in my report, I’m expecting this stock to be somewhat volatile over the coming months, not just because of earnings but also because it is a very recent IPO. Please be sure to average in. The official rating is “buy a half.”
Changes This Week
Inspire (INSP) Moves to Buy
Updates
Accolade (ACCD) is our newest stock and reports today after the close. It is a digital healthcare company with a user-friendly platform that helps members navigate the healthcare system, make better decisions for their healthcare and benefits needs, and control costs. It primarily sells to self-insured, enterprise-scale companies, but is moving down market to somewhat smaller firms (but still very big) that want to keep their current insurance relationship intact but offer better services to employees. Digital healthcare is a hot area (witness the TDOC & LVGO merger) and Accolade is a recent IPO so there’s likely to be a lot of movement in the stock’s price in the coming months. Revenue should be up around 21% this year and accelerate from there, up to 25% next year and 30% in fiscal 2023. All that said, tonight’s results will play a big role in updating forward expectations. BUY A HALF
AppFolio (APPF) responded well to its earnings report and is up roughly 17% since. Recall that revenue was up 27.4% to $81.4 million (beating by $3.2 million) while adjusted EPS of $0.54 beat by $0.42. Management did not provide full-year guidance as it says the benefits and challenges of the pandemic are just too difficult to forecast. However, consensus estimates suggest 22% to 25% growth this year and next. Keep holding. HOLD
Arena Pharmaceuticals (ARNA) has continued to trade in a tight range since its recent business update. The two biggest potential catalysts remain the topline data readout from the ADVISE trial late this year and the topline data from both the ELEVATE UC 52/12 trials, expected by the end of next year. Stay patient. BUY
Avalara (AVLR) is down roughly 12% since it reported earnings, mostly as a result of a secondary stock offering priced at 127 (4 above where the stock is now) that came in concert with the report. Avalara ended the quarter with $474 million, and has now added roughly $500 million more thanks to the stock offering, putting the company in a very strong financial position to keep growing. Recall that in Q2 revenue of $117 million was up 28% (beating by $6 million) and adjusted EPS of $0.04 beat by $0.14. Management said June was the best non-December month of bookings ever. The pandemic is helping. We’re going to keep at hold for a spell here then I anticipate moving back to buy, once we see broader strength in software stocks return. HOLD
Cardlytics (CDLX) was all over the map after it reported but shares are measurably higher since (20% or so). That strength is consistent with what we’ve seen in other stocks that could benefit from a consumer rebound, like Mastercard (MA) and Visa (V). Still, Q2 was challenging with revenue down 42% and clear weakness in restaurant, travel and retail. Management is definitely doing things to help prepare the company for a rebound, and I like the moves they’re making so we’re going to hold on. Despite the volatility (CDLX is 26% off its all-time high) we’ve still doubled our money here, and the future is bright. HOLD
Everbridge (EVBG) had three significant down days after reporting a perfectly good quarter that beat expectations (revenue up 35%, adjusted EPS of $0.06 beating by $0.27). New products (COVID-19 Tracing, etc.) are helping to pull in new customers and the global opportunity is as big as ever. There’s no issue, other than that high-growth software is/was just expensive and some form of correction was due. Is a 25% correction or so the right amount for EVBG? I’ll tell you in a couple months. For now, I’ll say that EVBG is well above its 200-day line and this type of pullback is typically one you want to buy into. We won’t do that just yet – let’s let this software slump marinate for a bit first – but I expect to move back to buy before too long. HOLD
EverQuote (EVER) has suffered a more meaningful pullback (40% off all-time high) after a quarterly report that missed modestly on both the top and bottom lines. Management also announced it is stepping into the direct-to-consumer sales model in the healthcare market with the acquisition of Crosspointe Insurance & Financial Services. There was also a lot of talk on the conference call about the specifics of certain market dynamics (like auto insurance) and what the traffic team is doing. The punchline is that management was clearly under some pressure on the call but doesn’t seem to think the big picture has changed for the worse at all. Sometimes a “miss” can be the beginning of a contraction/turbulence in a business, but sometimes it can just be the confluence of several factors that don’t have a lasting impact. In this case my read is that it’s more the latter, though only time will tell. It’s somewhat aggressive but at these levels (stock just below the 200-day line), and with management having raised its full-year outlook (35% growth expected) and profitability likely on tap starting at some point in 2021 I think growth investors are going to start looking at EVER again soon. Keeping at buy. BUY
Fiverr (FVRR) surged after reporting a huge quarter in which revenue jumped 82% and management announced several growth-oriented business development initiatives (Promoted Gigs, Fiverr Business, etc.). Still, shares weren’t able to hang onto the earnings-related jump and have since pulled back 17%. That’s not surprising given the magnitude of the stock’s run since March. We’re still doing just fine and are up 225%. Let’s keep holding. HOLD
Goosehead Insurance (GSHD) also exploded after reporting and has been a little jumpy this week. But as with FVRR, given the size of the recent run and the jump after reporting a little more action is perfectly normal. Revenue of $30 million was up 52% and beat expectations by 25%. Management also announced a special dividend payable to shareholders of record as of August 10. That cutoff likely contributed to the recent volatility. Keep holding. HOLD
Inspire (INSP) jumped after earnings, pulled back, but has been stable since and looks ready to continue to steadily grind higher. Management had the confidence to issue full-year guidance with revenue now expected to rise 7% to 12% ($88 million to $92 million), which is far better than the 2% decline (to $80 million) that analysts had expected. Another positive – yesterday management announced Inspire therapy was approved in Australia, where roughly 5% of people are diagnosed with obstructive sleep apnea (OSA). This will kick off a process whereby Inspire will seek reimbursement (expected to be completed in 2021) and there will be some investment required to get a sales process flowing. The stock looks good and fundamentals appear solid, despite the pandemic. Moving back to buy. BUY
Karyopharm Therapeutics (KPTI) was moved to hold in a Special Bulletin yesterday due to lackluster stock performance. As I outlined in the bulletin I think there is plenty to look forward to here, and the stock could easily be at a “bottom.” But we’ve had at buy for long enough and with potential catalysts pushed out a little it’s time to get a little more conservative. For those who want to average down here, I’m not opposed to that. A stop around the 13 level would make sense in that case. Officially, I plan to look for evidence of a more sustained uptrend forming before moving back to buy. HOLD
Palomar (PLMR) is trading within 4% of all-time highs after reporting a better-than-expected quarter last week. Revenue was up 67% to $43 million (beating by $6 million) while adjusted EPS of $0.52 beat by $0.03. Gross written premiums jumped 44% while net premium written growth was 59%. No change in my outlook. BUY
Q2 Holdings (QTWO) spiked after reporting last week then pulled back with other software stocks. A couple days of strength this week has it back to within 8% of last week’s all-time high. The big-picture story still looks great. Q2 revenue was up 26% to $97.6 million (beating by $2.8 million) and adjusted EPS of $0.07 beat by $0.09. Four Tier 1 wins show demand from bigger customers is strong. Keeping at buy, just pick your spots. BUY
Repay Holdings (REPAY) reported this week and I detailed the results in a Special Bulletin. No new news. Keeping at buy. BUY
Repligen (RGEN) also surged after reporting then pulled back almost to its pre-reporting price before bouncing a little this week. I’ve kept at buy. Revenue rose 24% (up 19% organically) to $87.5 million, beating by $9 million. Adjusted EPS of $0.42 destroyed consensus of $0.28. Management said Covid-19 has provided a significant lift to its Protein and Filtration Products businesses and that the trend is expected to continue. There was also a lot of demand for gene therapy-related solutions. Full-year revenue guidance was raised by roughly $20 million to a range of $332 to $340 million. BUY
