We kick off today’s update with a couple quick housekeeping notes. First, Cabot’s offices are closed this coming Monday, February 15 for the President’s Day holiday.
Second, next week I am supposed to be enjoying a mixed work/vacation week skiing in Vermont with my family as our kids are on vacation. Unfortunately, it looks like my wife will not be able to make it (she’s part owner in a business which is going crazy) so I will likely be solo parenting in VT on a working ski vacation with two energetic young boys who couldn’t care less about the stock market!
With a short work week and limited time to sit and ponder the market’s movements in glorious solitude I won’t write a full Weekly Update next week. Instead, I’ll send Special Bulletins on anything pertinent to us, especially earnings reports, of which we currently expect three: Fiverr (FVRR), Q2 Holdings (QTWO) and Everbridge (EVBG). It’s far easier to read, study, interpret what’s going on with our stocks and write quick updates on what matters most than to cover every stock we have in a Weekly Update.
As always, please don’t hesitate to reach out with any questions, comments, parenting tips and recipes for 10-minute dinners.
On to the market …
Suffice to say we are in a bull market. Areas of it are most definitely frothy. But stepping back and thinking about where we are in a bigger cycle I continue to feel as though we are entering a more sustained economic recovery and (hopefully) sustained market run-up broadly similar to what happened coming out of other major shocks, like the dot-com bubble and Great Financial Crisis.
I haven’t prepared a dissertation on this thesis. But that’s how I’m approaching the current investing environment. And when you layer in huge, transformative trends (that sound like buzzwords but are real) like digital transformation, clean energy, artificial intelligence, rapid e-commerce acceleration, cloud software adoption, and so on, there is understandable euphoria regarding where we can go in the coming years.
That’s not to say we won’t have some ugly market retreats. We will. My standard assumption is that we are always on the verge of a 20% to 30% retreat in any of our stocks. But the winning strategy has been to stay long, with appropriate guardrails. So, we will likely continue to do so.
The two biggest concerns on my mind at the moment are what happens when interest rates start to go up (but we’re not there yet) and if we hit an air pocket in the market once earnings season is over and it’s just boring old March and April. On the flip side, the allure of better days ahead and a more robust economic recovery and general lifting of the weightiness of the pandemic brought on by increasing vaccine distribution could easily brighten up the winter blues after earnings reports trail off.
To land the plane here, on balance we’re still leaning bullish but trying not to be too greedy and/or chase stocks that seem overheated without good reason.
There are no ratings changes today.
Recent Changes
Porch Group (PRCH) Moved To Hold
Updates
Accolade (ACCD) reported Q3 fiscal 2021 results in January so we’re looking out to late March before the next big update. This stock is a little volatile (like a lot of recent IPOs) but the story and numbers continue to be enticing. Keeping at hold. HOLD
Arena Pharmaceuticals (ARNA) has been recovering nicely from a little mishap in November that cut the stock by a third (a snafu in a trial that should be looked past with little concern). Shares are now within 10% of their previous high and we should get another business update near the end of the month. In the meantime, the biggest news is that the company completed expanded enrollment in the Phase 3 ELEVATE UC 52 study for etrasimod. The trial now has 433 patients, up from the target of 372 which was reached in December. The destination is still a ways off (roughly one year to get results) but we’re getting closer and there will be data releases for earlier-stage trials in 2021 to keep investor interest (though the big carrot is still etrasimod in UC). BUY
Avalara (AVLR) reported last night and I detailed the results in a Special Bulletin earlier this morning. The stock is a little weak today so we’ll continue to monitor it. As of now it continues to be rated buy. BUY
Earnings: Done
BioLife Solutions (BLFS) fell below its 50-day line a couple weeks ago but found support at 35.7 and has been working its way back. This looks like a normal consolidation phase. Earnings, due around March 11, will likely determine the next direction. I expect them to be supportive of higher prices. BUY
Cardlytics (CDLX) has been quiet lately in terms of news flow but the stock has recently run back to its previous high near 150 and is on the verge of a full-fledged breakout. We’re still several weeks from the company’s earnings report and there’s a good deal of uncertainty in this stock as consumer spending in its biggest categories was hurt by the pandemic, but the company has been working to adapt over the last year. On balance, it is still a hold. HOLD
Cerence (CRNC) reported Monday morning and I detailed the results in a Special Bulletin. The headline was that Q1 fiscal 2021 revenue was up 22.6% to $95 million (beating by $7.1 million) while adjusted EPS of $0.59 was up 103% (beating by $0.08). Full-year revenue is seen up 12% to 15% ($370 million to $380 million) as management bumped up the low end of guidance by $5 million. Adjusted EPS is seen in a range of $1.91 to $2.10, up 17% to 30%. The stock was a little all over the place throughout the day Monday but has been solid since and the uptrend looks intact. You can continue to buy on any weakness. We’re up 155%. BUY
Everbridge (EVBG) has been in a long consolidation phase that’s kept shares trading in a wide range mostly between 115 and 155 for months. When the breakout comes EVBG should be able to go on an extended run, provided the numbers and outlook are good enough to support it of course. Naturally, we’re looking for the upcoming earnings report next Thursday to catalyze that move. Analysts are looking for revenue growth of 27% to $72.5 million and adjusted EPS of $0.02. Should management deliver a big beat on the bottom line the company could turn an adjusted profit for the full year. The outlook will be key. Current 2021 estimates point toward 26% revenue growth (to $340 million) and adjusted EPS of $0.07. Keeping at buy. BUY
Confirmed Earnings Date: February 18
Fiverr (FVRR) reports next Thursday in what should be an exciting event as the stock is trading well above most analyst targets. Consensus estimates are calling for Q4 revenue to be up 83% to $54 million and adjusted EPS to be up 250% to $0.12. That implies full-year 2020 revenue growth of 77%. Looking to 2021, estimates call for revenue growth of 37% to $260 million and adjusted EPS growth of 160% to $0.70. The big question is how much business sticks as we exit the pandemic, which has been a company changer for Fiverr. Management isn’t letting off the gas. Today we learned it will acquire Working Not Working, a platform for high-end creative talent that boasts tens of thousands of vetted creatives and is used by Google, Netflix, Spotify, Droga5 and Wieden+Kennedy. Working Not Working was founded in 2011. Details of the deal have not yet been disclosed but at a quick glance I like it. Fiverr is right to keep pushing forward aggressively. HOLD HALF
Confirmed Earnings Date: February 18
Goosehead Insurance (GSHD) is racing higher again on no news. We’ll take it. Keep holding on. The company has roughly 1% market share in the independent agency insurance market, which means it has a lot of room to grow. Management just needs to keep executing, especially given the high valuation. Earnings are expected in mid-March. HOLD
Inspire Medical Systems (INSP) has broken out to new highs as investors look forward to wrapping up a year of mid-30% revenue growth and growing at a roughly 55% clip in 2021 as the impacts of the pandemic ease and Inspire benefits from positive reimbursement, international growth and patient adoption trends. HOLD
Confirmed Earnings Date: February 23
Personalis (PSNL) pre-announced Q4 results several weeks ago then tapped the market with a secondary offering priced at 38. The market is still digesting that and shares are roughly 25% off the all-time high, but the story hasn’t changed and the company has roughly $160 million in fresh capital. Full results are due on February 25. BUY
Confirmed Earnings Date: February 25
Profound Medical (PROF) was last week’s new addition. The Canada-based company has developed incision-free therapeutic systems for the ablation of diseased tissue by combining real-time Magnetic Resonance Imaging (MRI), thermal ultrasound and closed-loop temperature feedback control. The extremely flexible therapy, TULSA-PRO, is used to treat a variety of prostate cancer and benign prostatic hyperplasia (BPH) conditions. Revenue is up 115% through the first three quarters of 2020 and early estimates for 2021 suggest 80% to 100% revenue growth is within the realm of reason. This is a small company, however, and even with that growth rate we’re only talking 2021 revenue of $15 million. There’s a way to go before this becomes a significant operation. BUY
Confirmed Earnings Date: March 2
Q2 Holdings (QTWO) broke out a couple weeks ago and will report next Wednesday. Consensus estimates call for Q4 revenue growth of 23% to $106 million and adjusted EPS of $0.05. That implies 2020 revenue growth of 27% to $400 million and adjusted EPS of $0.11. Looking to 2021 early estimates suggest revenue should be up 23% to $490 million. However, with a retreating pandemic it should be much easier to move forward on implementations and the expected cyclical recovery should favor financial institutions and open the door for more spending on the types of virtual and digital banking solutions sold by Q2. BUY
Confirmed Earnings Date: February 17
Porch Group (PRCH) was added in early January and after a furious rally is already up over 70% from our entry point. A number of acquisitions have helped spur that move, and it doesn’t hurt that early estimates for 2021 point toward $170 million in revenue, which would be up 143% over estimated 2020 revenue of $70 million. Acquisitions will be a big part of that – when I recommended the stock just over a month ago we were looking for 2021 revenue growth closer to 60%. A lot of moving pieces and excitement here and a stock that’s gone vertical. Given the mad rush of recent buying I have moved PRCH to hold, though you can still add a few shares on weakness if you’re playing the long game. HOLD
Repligen (RGEN) is trading near all-time highs but I think we need to get past earnings before the stock’s next move can be confirmed. Earnings are due out the week after next. We learned this week that the company’s work with Navigo Proteins to create their NGL Covid-19 Spike Protein Affinity Resin is complete and commercial launch has just begun. This protein is used in the purification of Covid-19 vaccines. Good stuff. Still a buy. BUY
Sprout Social (SPT) is another stock that has gone absolutely bonkers. As I said a couple weeks ago, if the last 12 months have taught us anything it’s that social media is playing a bigger and bigger role in the world. I have to believe that’s good for a company like Sprout, which operates a platform that businesses use to manage their social media engagement, publishing and analytics. Enjoy the ride. HOLD
Confirmed Earnings Date: February 23
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
