This has been another tough week for most growth-oriented small cap stocks as the sellers have clearly taken control. There are easy targets to point to as driving the decline, namely fear of inflation. But the reality is it is mostly just a lot of uncertainty about the path of the recovery that’s likely driving the selling. And the fact that most stocks are still up very nicely over the last twelve months, meaning a lot of room for profit taking.
Just as the pandemic economy was a unique time so too is the pandemic recovery. It’s very uneven, which means a lot of trends and fiscal/stimulative strategies that work for one market/part of the economy may or may not work for another, at least not at the same time. It’s kind of a mess, and if one wants to look at the glass as being half empty then there are ample reasons to feel down.
On the other hand, it’s hard to focus on fresh opportunities if one takes a glass half empty approach. Truth is, we’re making a lot of progress and things are certainly a heck of a lot better in the real world today than they were a few months ago. While many stock prices haven’t moved in the right direction lately, most of our portfolio businesses are doing extremely well. As I look around at new stock ideas there is a lot I like, and the prices now are much more attractive than two months ago.
In short, it’s been a step back for sure here in May. But these types of market resets also lay the foundation for the next string of profitable investments. My potential buy list is growing.
We’ve been doing more trimming than buying lately, and for now that trend will continue. Today, we’ll take heed of the market’s action and trim a little more. But we’re also not completely opposed to select buying if keeping new positions small. Details below.
Recent Changes
Fiverr (FVRR) – SELL A QUARTER, HOLD REST
Inspire Medical Systems (INSP) – SELL A QUARTER, HOLD HALF
Updates
Accolade’s (ACCD) story hasn’t changed over the last eight days since management reported Q4 fiscal 2021 results. The numbers were good and fiscal 2022 guidance is very much acceptable and likely to get much better when acquisitions are factored in. Sentiment has certainly cooled off but ACCD has been a volatile stock since we jumped in and with shares lower over the last two weeks but the story intact it remains a buy. BUY
Earnings: Done
Arena Pharmaceuticals (ARNA) has slid back to where the stock was last summer (near the 60 mark). As with Accolade, nothing has changed here. This is just a risk off environment. Still, the long game is potentially huge and as we cross into summer; we’re that much closer to major data releases in early-2022. In the meantime, we’ll look for topline results on the Crohn’s trial before the end of this year. HOLD
Earnings: Done
Avalara (AVLR) reported a good Q1 and the stock initially popped, then faded. It’s been pulled down with growth stocks since and currently trades near support at 119. We took partial profits last week, so we’ll stick with a half-sized position for now. This is a stock I believe can get back in the game sooner than many other growth stocks, but clearly we’d like some evidence of that potential before adding to the position again. HOLD HALF
Earnings: Done
BioLife Solutions (BLFS) reports tonight and with the stock well off its highs and a just plain horrible earnings season the best call is to sit and watch. We’ll be back with an earnings review tomorrow morning. In terms of expectations, we want to see at least 32% revenue growth (to $16.1 million) and a trajectory to $110 million in revenue this year (up 129%). Management is sure to get grilled on profit margins which are under pressure due to lower-margin acquisitions. HOLD
Earnings: Tonight (May 13)
Cardlytics (CDLX) was sold on Tuesday as we exited our remaining half position for a gain of 143%. No new news. SOLD
Cerence (CRNC) reported earlier this week that revenue rose 14% and that 2021 revenue should be up 15% to 18%. All things considered the stock’s reaction was relatively muted. It is trading near support at about 81.5 now. We’ll stick with the current hold rating. HOLD
Earnings: Done
Everbridge (EVBG) also reported earlier this week and I detailed the results in a Special Bulletin. The stock popped after the report – a rare occurrence in this market – and EVBG has been able to hold on to some of the gains. We stuck with a buy rating after the report and will maintain course now. BUY
Earnings: Done
Fiverr (FVRR) continues to slide as the big work-from-home stocks have lost all support. We’re holding a half position now, but with the stock’s action looking quite pitiful we’ll take another quarter off the table. SELL A QUARTER, HOLD REMAINING QUARTER
Earnings: Done
Goosehead Insurance (GSHD) was sold earlier this week as we took profits on our remaining quarter position. Our gain on that sale was 201%. SOLD
Earnings: Done
Inspire Medical Systems (INSP) has retreated with other growth stocks and shares have fallen below support in the 185 area. The stock looks quite oversold to me, however with the current sentiment out there and a three-quarter position, it may make sense to reduce our exposure here a little. Hopefully this is the wrong decision, but we can’t ignore the trend. Let’s sell a quarter and hold our remaining half. SELL A QUARTER, HOLD HALF
Earnings: Done
Kornit Digital (KRNT) reported a fine quarter (detailed in a Special Bulletin) and the stock had a relatively muted reaction. We moved to hold after the report simply because the broad trend has been down so there’s not a ton of incentive to buy now. Let’s continue to give KRNT some time. HOLD
Earnings: Done
Porch Group (PRCH) has been a funny stock lately as it’s been hugely volatile but low and behold it’s actually trading higher than it was in mid-April. Earnings are out on Monday. Is it a buy? Well, that’s our official rating but as with so many stocks right now it likely makes sense for those with established positions to just sit tight. Technically I will keep at buy as, at the moment, the stock’s action is somewhat intriguing. BUY
First Quarter Earnings Date: Monday, May 17
Q2 Holdings (QTWO) reported last week and I moved the stock to hold afterward out of an abundance of caution since the overall market for growth stocks was poor. Nothing has really changed in the last week, though trading back near the level of its November 2020 earnings report I think QTWO is enticing here. HOLD
Earnings: Done
Revolve (RVLV) has been on a wild ride since it reported, first surging double digits then pulling back even more. Clearly, from the report, the business is cranking, but investors are taking risk off the table. I think this action will mellow out as we move forward as the Revolve story should continue to resonate with even mildly risk-tolerant investors, as well as those looking for small cap reopening thematic trades. Yes, the spikes up and down can drive one mad, but as we’ve seen before these types of moves come and go. Keeping at buy. BUY
Earnings: Done
Repligen (RGEN) reported a terrific quarter last week but the stock has been caught up in the selling. There’s possibly some concern about opening up IP to other vaccine producers around the world, which could weigh on Repligen’s Covid-19 related growth. Still, that’s a story but not yet a reality. I continue to see Repligen as a rare asset and think exposure to bioprocessing technology is good for one’s portfolio. BUY
Earnings: Done
Sprout Social (SPT). “Strong” is a relative term in this market but if you’re looking for a strong small cap software stock it’s going to be hard to beat SPT, at least at the moment. Sure, the stock is well off the high but it’s acting far better than most. The earnings report was good, and the big picture trend of social media suggests continued demand for solutions companies can use to manage their online presence. I’ll stick with the buy rating. BUY
Earnings: Done
Thunderbird Entertainment (THBRF, TBRD.V) was last week’s new addition. The company is a Canada-based multi-platform, media production, distribution, and rights management company. Programs span a variety of genres, but the company is particularly focused on children’s productions, scripted comedy and drama, and non-scripted (factual) content. Thunderbird’s programs are currently available on broadcast and cable channels within the U.S., Canada and other countries, as well as on most of the major digital platforms, including Apple TV+, Disney+, Netflix, HBO Max, Hulu, Netflix, Peacock and PBS Kids. Revenue was up 41% last year, and up 56% over the last six months. Over the last week the stock has retreated some, but so far has held up far better than many growth-oriented names. Management will present at the Needham Virtual Technology & Media Conference, running from May 17 – 20. BUY
Earnings: Thursday, May 27
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
