A day like yesterday can make investors feel like there’s little reason to hang around in this market. Even a perfectly good report from tech behemoth Microsoft (MSFT) is rewarded with a drubbing. But then you look into recent earnings reports from select companies like Pinterest (PINS), Snapchat (SNAP) and our very own Fiverr (FVRR) and reflect on what some of the fundamental drivers of strength are and your appetite for investing in growth stocks rebounds.
This iffy action is probably going to continue for a while here as we work through earnings season and the election and all the uncertainly that’s likely to follow, regardless of who wins.
As I’ve been telegraphing, we’ll likely hold each of our stocks through their earnings reports, then assess each one based on the current trends and management’s signals for the future. For the most part, I’m expecting solid reports and encouraging guidance, though clearly the trajectory of the virus over the past 10 days is concerning and management teams will likely bake in some conservativism as a result.
This afternoon we hear from Goosehead Insurance (GSHD). I’ll be in touch tomorrow morning with an update on its quarter. Then as we move into next week we will get at least eight more reports, plus we have a new Issue slated for Thursday. It’s sure to be an interesting week.
On a personal note, I have one simple suggestion – take partial profits in at least one stock and treat yourself to something nice with the proceeds. Something that will make life better and/or more interesting for you or someone you’re close to.
It can be something small, or something big. Either way, you’ve earned it! This has been a tough year for many people and some reward for hard work, patience, perseverance, etc. is due.
Changes This Week
EverQuote (EVER) moves to HOLD
Earnings Calendar
Thursday, October 29: GSHD
Monday, November 2: CDLX, EVER, INSP, KPTI
Wednesday, November 4, QTWO
Thursday, November 5: AVLR, EVBG, RGEN
Monday, November 9: SPT
Tuesday, November 10: PLMR
Updates
Accolade (ACCD) reported two weeks ago and beat on both the top and bottom lines. The stock has been a little wild since, including through a secondary offering priced at 38.5. After a tough day yesterday ACCD is trading near 35, roughly 23% off its high (hit just after earnings were reported). The company didn’t really need the $221 million it raised for anything obvious, which leads me to believe management sees some M&A potential. We’re keeping at buy a half and I’m looking for a slightly more opportunistic moment to fill our other half position. BUY A HALF
Earnings: DONE
AppFolio (APPF) should report quarterly results next week but we don’t have an earnings date confirmed just yet. There’s been no news lately. The stock remains near the middle of the trading range that has persisted since the end of May. Analysts expect revenue grew by 24% to $84.5 million in Q3 and to be up 25%, to $320 million, in 2020. HOLD
Arena Pharmaceuticals (ARNA) is trading 5% of its recent high. Recall the announcement from Bristol Myers Squibb (BMY) a couple of weeks ago regarding favorable Phase 3 data on that company’s S1P modulator ozanimod for treatment of UC. This helps sell the story that Arena’s S1P modulator etrasimod is on track to succeed, with room to differentiate from ozanimod. While roughly a year behind Bristol Myers, Arena’s drug has potential to gain around two-thirds market share. That has analysts praising the potential, and investors scooping up shares. BUY
Avalara (AVLR) was moved to buy three weeks ago following the Transaction Tax Resources (TTR) acquisition. Avalara is well-positioned to keep growing (and to accelerate growth) as eCommerce sales march higher due to evolving shopping patterns. The pandemic is fueling some of this and businesses are likely to need sales tax compliance solutions so they can focus on growing/protecting their business, not messing around with compliance and associated errors due to lack of proper systems. Analysts see revenue up 18% in Q3 and tracking toward up 23% in 2020, when adjusted EPS is seen near -$0.17. It’s not hard to see a scenario in which revenue growth reaccelerates toward 30% in 2021. That’s not baked into consensus estimates however, and any indication from management on that score would likely drive AVLR to fresh highs following next Thursday’s report. It’s a buy. BUY
Earnings: Thursday, November 5
Cardlytics (CDLX) entered the week trading at the high end of the trading range that has persisted since mid-May. Not surprisingly, the stock pulled back with the market over the last two days as concerns over global infections have jumped. It hasn’t helped that both Mastercard (MA) and Visa (V) have been wounded from not-so-great reports. Still, Cardlytics has been relatively resilient lately and I don’t think a recovery is out of the question as management adapts to the new normal. Earnings are out Monday and we’ll hear exactly what’s going on. Consensus estimates suggest a brutal 2020 in which revenue will fall by almost 20% and adjusted EPS will plummet to -$2.18 (from -$0.09 in 2019). But then in 2021 revenue jumps almost 50% and EPS losses are cut by 40%. It’s a buy for risk-tolerant investors. BUY
Earnings: Monday, November 2
Cerence (CRNC) was whacked yesterday but the stock is trading up nicely today and there’s no damage (yet) to the bullish trend in the stock. Shares are 10% off their all-time high from Monday. Some of the resiliency may be due to an upgrade last week at Wedbush where analysts bumped the price target up to 75. We don’t have an earnings date yet, but management will speak at the Gabelli Automotive Aftermarket Symposium on Monday. A replay will be available at Cerence’s website and it should provide some interesting product insights. So far so good with this position, which is still up around 15% from our entry point a few weeks ago. BUY
Everbridge (EVBG) was trading within its established range until yesterday when a downgrade to neutral from buy at BofA, and a price target reduction from 162 to 150, sent the stock into a tailspin. EVBG closed the day down 14%. I sent out a Special Bulletin detailing the rationale for the downgrade. Management is set to report Q3 results next Thursday. While BofA suggests consensus estimates might be a stretch, current estimates call for Q3 revenue to be up 30% to $68.4 million and be on pace for 34% growth in 2020. Current 2020 EPS estimate is for $-0.10. We’ll just have to wait and see what management has to say. HOLD
Earnings: Thursday, November 5
EverQuote (EVER) will report Q3 results on Monday. The stock has been somewhat weak, but stable, since it pulled back following the Q2 report in early-August. Yesterday’s rough market pulled EVER just below support near 35 so we’re watching this one closely. The underlying challenge here is that EverQuote posted huge revenue growth in Q3 2019, Q4 2019 and Q1 2020 (61%, 86% and 51%, respectively) while also enjoying very strong key performance indicators (or KPIs), such as revenue per quote request. That sets up a series of tough comparisons in the quarters to come. However, with a price in the mid-30s the stock isn’t factoring in a best-case scenario, and in fact there is ample room for a positive reaction (we hope) should some of the KPIs and/or revenue growth surprise to the upside. I’ve had at buy for a couple of months and now it’s time to sit back and see what happens. Moving to hold. HOLD
Earnings: Monday, November 2
Fiverr (FVRR) reported Wednesday morning before the market opened and I sent out a Special Bulletin detailing the results. Shares were down early in the morning but bucked the broad market’s weakness and, after bouncing off their 50-day line, closed up 7.7% and finished the day 13% off their all-time high (hit 10 days ago). The combination of strong results, great guidance and seemingly likely continuation/intensification of the pandemic (a tailwind for Fiverr, to a point) all likely contributed to the stock’s strength. Management continues to invest for growth with initiatives such as Promoted Gigs, Fiverr Business, project milestones, localization efforts and the Empower Program (aimed at lifting underprivileged). We’re continuing to hold and are watching for any potential signs of meaningful profit taking, which could lead us to reduce our position by a quarter. HOLD
Earnings: DONE
Goosehead Insurance (GSHD) will report Q3 results after the bell today. Analysts are expecting revenue to grow 33% to $28.1 million and adjusted EPS to grow 71% to $0.12. For 2020 we’re looking for guidance of 31% revenue growth (to $110 million) and 48% EPS growth (to $0.59). We want to hear about strong renewals as these drive much of this growth story. Hold through the event and we’ll evaluate afterward. HOLD
Inspire (INSP) is trading 10% off its recent high as rising case counts increases risk of procedure deferral. I’m sure this question will be asked on the conference call and management will say that a lot depends on what happens in different areas of the country and how hospitals handle the recent uptick in Covid-related hospitalizations. The stock price is factoring in a return to solid growth in 2021 so anything that dents that perception could damage the stock. In 2020 revenue is on pace to grow just 10%. That compares to expectations of 67% in 2021. HOLD
Earnings: Monday, November 2
Karyopharm Therapeutics (KPTI) has been moving sideways-to-up for a number of weeks as the timeline to potential catalysts grows shorter. Nothing new to add from last week’s update. By the end of 2020 we’re looking for Phase 3 data for Xpovio in liposarcoma and potential approval of Xpovio in Europe for late line multiple myeloma. The bigger announcement is slated for March 19, 2021 when we’re hoping to hear that Xpovio, in combination with Velcade, is approved for 2L+ multiple myeloma. BUY
Earnings: Monday, November 2
Palomar (PLMR) has continued to recover from the news of higher-than-exepcted hurricane-related catastrophe losses. The big picture story here remains about a best-in-class company with growth well above any peers. That trend will likely continue as the specialty insurance market will seek to recoup the recent catastrophe losses. We’ll see how things are looking when management reports on Tuesday, November 10. BUY
Earnings: Tuesday, November 10
Q2 Holdings (QTWO) hasn’t changed its character lately. The stock continues to trade in an established trading range, which could change after earnings come out next Wednesday. Analysts are looking for Q3 revenue to be up 30% and full-year 2020 revenue to be up 27%. The environment for banks isn’t terrific these days given low interest rates but the digital revolution is real and virtual banking and lending solutions are becoming a “must have.” Stepping back, I won’t be surprised if we learn that activity picked up in Q3, but that management is increasingly cautious on the current quarter (Q4) when it speaks on the conference call. We could easily see implementations getting delayed into 2021 due to rising virus cases. Provided we move toward a vaccine with wide distribution in 2021 this shouldn’t be a huge issue, but certainly the details will matter. I think the stock’s current price reflects much of the above. BUY
Earnings: Wednesday, November 4
Repay Holdings (RPAY) announced early in the week that it would use some of its current cash to acquire B2B payments and accounts payable automation provider CPS Payment Services (CPS) for $93 million. CPS was formed in 2011 and operates a software platform that facilitates automated card, check and ACH payments for 160 enterprise customers. CPS offers integration with over 25 ERP and accounting software platforms and will help expand Repay’s market into education, government and media, while building on its current healthcare B2B business. Current estimates suggest Repay will grow revenue by 53% to $36.2 million in Q3 and by 44% to $150 million in 2020, when adjusted EPS will be around $0.53. BUY
Earnings: Monday, November 9
Repligen (RGEN) has been one of my higher conviction plays heading into fall given that it is a pure-play bioprocessing stock and there’s massive demand for these services/products in the best of times, let alone during a global pandemic. Along with larger players Thermo Fisher (TMO) and Danaher (DHR), Repligen seems like a solid bet for the next year-plus (we’ve held since late-2018). The company will report next Thursday. Analysts see Repligen’s Q3 revenue up 23% and full-year revenue up 26%. However, Repligen recently announced a couple of acquisitions that will certainly be discussed on the conference call. While these purchases won’t move the needle in Q3 since they were just announced, they should offer meaningful contributions in 2021.
What did Repligen buy? First up is ARTeSYN Biosolutions, a privately held supplier of downstream bioprocessing solutions, namely single-use chromatography and filtration systems. Repligen also recently acquired Engineered Molding Technologies (EMT) and Non-Metallic Solutions (NMS), which adds additional single-use system components and associated integrated flow path assemblies. The press release says ARTeSYN is growing at 10% to 20% and should contribute $33 million to $36 million in 2021 while NMS should contribute around $5 million. Given current 2021 revenue consensus of $400 million this implies roughly 10% added to the topline. Both ARTeSYN and NMS should be accretive to EPS in 2021. BUY
Earnings: Thursday, November 5
Sprout Social (SPT) operates a platform used by companies so they can manage their social media engagement, publishing and analytics. Management reports Q3 results on Monday. Analysts see revenue up 25% to $33 million and adjusted EPS improving by 25% to -$0.12. For the full year, revenue is seen up 27% to $130 million. BUY
Earnings: Monday, November 9
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
