The flavor of the market hasn’t changed in the last week, in my view. There is still a sense that many high growth stocks have run too far. I think the lesser-informed general public hears about the recent slide in the mega-caps (AAPL, AMZN, MSFT, FB, etc.) and thinks they are “the market,” and that since they’re going down the market is in trouble.
In reality, those stocks probably shouldn’t have gone where they did so quickly, and it’s not at all strange that they’d give some back. Some of that capital may be better served being invested elsewhere, in fresh opportunities. And if you look around and see some of the fresher names doing well it’s not hard to believe one can connect the dots.
Of course, we have no way of tracking precisely where institutional capital is flowing. Things in the market happen in waves and right now many, but not all, of our stocks are in a bit of a trough. That’s fine. It happens and doesn’t typically mean a big-picture change is upon us.
That said, there are some big-picture changes afoot. The pandemic/vaccine evolution is the obvious one, as is the upcoming presidential election. The Fed’s pledge to keep rates low for the foreseeable future isn’t hugely surprising, so no change there.
Our strategy continues to be to try to focus on specific companies that are executing rational growth strategies that are helping them do something better, faster, bigger than the competition. And there’s no shortage of that going on right now given all the changes in the world!
For now, we’ll stay the course and keep plowing ahead.
Changes This Week
None
Updates
Accolade (ACCD) continues to swing around without any real direction. Shares are trading in the low 30s while most analysts maintain price targets near 45. While there are some headwinds from airline employee headcount reductions (the industry continues to ask for $25 billion in federal aid to help support it through next March) and a looming deadline in two weeks before the ban on industry job cuts expires, much of this news is already factored into the stock. More relevant now is that the potential airline-related revenue reductions are offset by growth with existing clients that are adding employees. We’ve also heard good things about the DHS pilot program, which could be significantly expanded. Keep averaging in to a half-sized position. BUY A HALF
AppFolio (APPF) hasn’t issued any updates since disclosing last week that it is selling its legal practice and case management software solution, MyCase. As I explained, I like the decision and think there are more growth-oriented ways to spend the proceeds of roughly $193 million. Shares are trading near the low end of the trading range that’s held since the beginning of June. HOLD
Arena Pharmaceuticals (ARNA) announced first dosing in the ELEVATE UC 12 global Phase 3 trial evaluating etrasimod in ulcerative colitis (UC). Along with the ELEVATE UC 52 (longer term) trial, this program is one of the major reasons we own the stock. Data is expected by the end of next year. It’s a very big trial, being conducted across 450 sites spread across the globe. We also have an upcoming top-line data readout from the Phase 2 ADVISE study (etrasimod in atopic dermatitis) coming by the end of this year. The stock is trading near the high end of its 15-week trading range. BUY
Avalara (AVLR) announced this week that it has rolled out a Beverage Alcohol suite of products for breweries, wineries, retailers and others in that industry. It’s also just pulled the sheet off a new solution in India that helps businesses stay compliant with the new e-invoicing rules in that country. Like many software stocks, AVLR is trading near the low end of its recent trading range. Keep holding. HOLD
Cardlytics (CDLX) has been trading mostly in the 64 to 88 range since mid-May and is near the low end today after dropping 11% on news of a private placement of convertible senior notes. Including options, the total value could be up to $230 million. Pricing has not yet been determined. Proposed use of the funds is typical boilerplate language, including “…working capital or other general corporate purposes, which may include potential acquisitions and strategic transactions.” We’ve seen this method of capital raise work well for many other high-growth companies and at the moment I have no reason to believe there will be any lasting negative impact for Cardlytics. Naturally, pricing will be relevant as it will give us a sense of what institutional investors are willing to pay right now. While there is some near-term price risk, I believe we can continue to buy. BUY
Everbridge (EVBG) is, like several of our other software stocks, trading near the low end of its multi-month trading range. We’ll keep at hold now. Management just announced that its COVID-19 Shield Contact Tracing solution is available for both workplace and campus safety on both the Apple App Store and Google Play Store. My understanding is that this solution is only available to current customers, though it could potentially help tilt the scales for customers that are kicking the tires on Everbridge solutions. Keep holding. HOLD
EverQuote (EVER) is still in the penalty box after a big retreat in July and August, but I don’t think the growth story is broken. Keeping at buy. BUY
Fiverr (FVRR) recently released Fiverr Business, a subscription solution aimed at helping larger companies work with freelancers. It’s a natural extension of the platform and should give multiple departments a better way to collaborate. The stock has been resilient in the face of some weakness with other software stocks and we’re now up roughly 275% since March. Keep holding. HOLD
Goosehead Insurance (GSHD) has sold off materially this week, most likely because of insider sales dripping into the market. This happens from time to time – even after lots of insider sales since the IPO, roughly half of the company’s value is represented by Class A shares (held by insiders). Over time this is coming down, which is better in the long term since the investor base will become more diversified. But the stock sales can put pressure on the stock. I still like the company and believe it’s worth holding on to. HOLD
Inspire (INSP) continues to look strong on no new news. BUY
Karyopharm Therapeutics (KPTI) looks to be firming up after an extended period of lackluster performance. Management announced that four abstracts related to XPOVIO will be presented at the European Society for Medical Oncology (ESMO), which is held this coming weekend. As I stated last week, the main catalyst (near-term) here is a pending label expansion for second line multiple myeloma (combination with Velcade) in the first three months of 2021. We’re also looking for Xpovio to gain approval in Europe. For the stock, I want to see continued stability above 15 to move back to buy. HOLD
Palomar (PLMR) is bouncing around just above the 102 level on no news. No change. BUY
Q2 Holdings (QTWO) has pulled back 18% recently but with no material change in the story and shares trading at a level similar to where they were before the pandemic. I’m keeping at buy. BUY
Repay Holdings (REPAY) recently completed a stock offering priced at 24 that meant a full exit from early investor Corsair. Since then the only notable news is that Barclays picked up coverage with an “overweight” rating and 28 price target. RPAY looks relatively stable around 23.5. BUY
Repligen (RGEN) continues to look solid. There’s no news lately. I recommend using any weakness to accumulate shares. BUY
Sprout Social (SPT) has pulled back from recent highs and is about 10% below our entry point. Nothing has changed. Sprout offers cloud-based social media management solutions so clients can handle all the activity occurring across multiple platforms, including Facebook (FB), Instagram, Pinterest (PINS), Twitter (TWTR), Google (GOOGL) and LinkedIn, among others. Revenue in 2019 grew by 30% and should be up around 27% this year and 30% in 2021. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
