The market, and especially the small-cap index, has been a little soft after the Fourth of July holiday weekend, but all things considered it’s hard to say anything is wrong. The move down in U.S. Treasury yields is a bit of a head-scratcher and the noise in the oil market is potentially of interest as consumers ponder charges at the pump. These are noteworthy items but not changing any big-picture thinking at this point.
A bigger event on the horizon is earnings season. Once we get into August things will get busy in our portfolio, though many mid- and large-cap growth stocks will start to report in the end of July.
Most immediately, we have one earnings report on tap today as Accolade (ACCD) is set to report after the closing bell.
Overall, we have no change in our thinking today as we moved incrementally more conservative two weeks ago and are mostly just keeping a close eye on how our stocks are acting. It will be refreshing to get more concrete data on trends when earnings reports come out since the rate of change coming out of the pandemic is so intense.
Recent Changes
Funko (FNKO) Moves to HOLD
Updates
Accolade (ACCD) reports this afternoon and I’ll have an update tomorrow. We should get refreshed guidance that includes the recent PlushCare acquisition, which could add north of $35 million (last year’s revenue). Combined with the 2.ndMD acquisition we should see a nice bump in the growth rate. We should also start to get some sense of what the customer interest in the combined solutions is given that customer count has grown from 100 to around 400 with these acquisitions. Current consensus is for 2022 revenue growth of 64% to $280 million and an EPS loss of -$1.00. Keeping at buy, but clearly there’s not a ton of incentive to speculate in the final minutes before the report comes out. BUY
Earnings: Today, July 8
Arena Pharmaceuticals (ARNA) has pulled back over the last week but overall the stock’s progress since early spring is encouraging. No news. In the second half of 2021 we’re looking forward to Phase 2 data for etrasimod in both alopecia areata and Crohn’s disease. Then Phase 3 trial data for ulcerative colitis (UC) is due out in early 2022. BUY
Avalara (AVLR) has rallied back to within 15% of its previous high. I suspect it will take some work for the stock to punch above 185 and that a very good earnings report (around August 4) would be needed to make that happen. We’ll stick with a buy rating now but I suggest keeping new positions on the smaller side. BUY
Cerence (CRNC) was moved to buy two weeks ago and the stock is roughly flat since. There was a big jump on July 2 after it was announced the stock would be added to the S&P 400 MidCap Index, then the stock lost some altitude yesterday when Raymond James said it was trading at a steep valuation. Yesterday also happened to be the day CRNC made the official jump to the S&P 400. We’ll stick with our buy rating for now, let things settle down and see how the stock handles itself in the coming weeks. BUY
Everbridge (EVBG) has made a nice move off depressed levels near 110 over the last month. The stock is still 20% off the all-time high, but in fairness that high-water mark was hit during an intra-day spike. In my view a move above 155 would be significant. The company saw some benefit from work-from-home trends during the pandemic but now sees strength in travel risk management, healthcare and live event management. BUY
Funko (FNKO) hasn’t looked great over the last two weeks and with the stock trading near the 20 level we are moving to hold and considering next steps. It appears the company is delaying its plans to launch NFTs in June as more time is needed to secure additional rights for digital collectible products. That’s a blow, but provided it’s just a delay the stock should move past this. Still, given the evidence we’ll move to hold now. HOLD
Fiverr (FVRR) made a nice move in the second half of May and through June. Shares have since flatlined just above the 240 level (an intra-day dip lower today is the one aberration). There’s no news and earnings are due out in about three weeks, so we’ll continue to hold and watch. HOLD
Inspire Medical Systems (INSP) has had a tough time getting back above 200. The stock failed to do so at the end of May, then posted a repeat performance this week. There is no news out there but it seems somebody is lightening up on the stock near that price point. We’ll stick with a hold rating. HOLD HALF
Kornit Digital (KRNT) hit an intra-day all-time high yesterday (128.5) before pulling back. There’s no new fundamental news, but we did see Barenberg pick up coverage with a 147 price target. Earnings should be out around August 11. BUY
On24 (ONTF) is our newest addition. The company recently came public (February 3) and initially popped, but has since fallen well below the IPO price. It seems like a good opportunity to buy growth at a reasonable price since the market isn’t yet familiar with the story. On that note, On24 is a $1.7 billion market cap company that offers a cloud-based digital experience platform to facilitate business-to-business (B2B) sales. Despite its small size On24 is the leading provider of purpose-built solutions for this market.
Its solutions give businesses the opportunity to lead with a digital marketing strategy and/or to supplement in-person events with digital engagement tools. Users of the platform often realize higher sales efficiency as compared to other digital and in-person sales and marketing efforts. This is why the company should continue to do well, even in a post COVID-19 world. If cases begin to rise this fall, that could be good for On24.
Revenue was up 76% in 2020, when EPS jumped from -$0.38 to $0.46. Analysts are currently modeling 2021 revenue growth of 34% ($210 million), just a hair above management’s guidance. That’s on the back of a huge year in 2020. I believe many investors are waiting to see how the trends shape up for the company before jumping in since some customers may reduce their spend with On24 if they see a full return to pre-pandemic life. I don’t think that’s going to happen, so I am comfortable stepping in here, before the story is fully known and appreciated. BUY
Porch Group (PRCH) has been toying with a breakout above 20 since the end of May. It would be helpful to get a couple of analysts covering the stock. On that note, Oppenheimer initiated coverage with a 28 price target at the end of June. We also saw PRCH join the Russell 2000 Index on June 28. Both help with credibility and visibility for the company that came public via SPAC IPO. BUY
Q2 Holdings (QTWO) remains at buy and is still one of those stocks that seems overlooked to me. QTWO could easily rally 30% to 50%. Key will be commentary on the Q2 earnings call in early August. No new fundamental news. BUY
Revolve (RVLV) was moved to hold two weeks ago after breaking out to new all-time highs. The stock has pulled back a little since then and now trades roughly 12% off the previous high. There’s no new fundamental news, other than that RVLV was added the Russell 3000 Index on June 28. I still like the stock but for now will stick with a hold rating and see how RVLV looks as the next earnings report (estimated for August 12) approaches. HOLD
Repligen (RGEN) continues to act well as it steadily recovers from a 27% drawdown in May. There’s no change to the story. It seems to me that RGEN was a casualty of a market retreat and as MedTech stocks recovered it went with the flow. Stepping back, I believe the ups and downs since the beginning of the year mask the bigger-picture trend here, which is that Repligen remains one of the few mid-cap pure play bioprocessing stocks out there. I’ve long wondered if the company will remain independent or allow a buyout from one of its larger peers (TMO, DHR). I like the independent route. Keeping at buy. BUY
Sprout Social (SPT) was moved to hold two weeks ago and is roughly flat since then. The stock has been incredibly strong and there’s no new fundamental news, other than that SPT joined Revolve (RVLV) in being added to the Russell 2000 Index on June 28. HOLD
Thunderbird Entertainment (THBRF, TBRD.CA) was added two months ago and didn’t do much until last Friday, when the stock jumped 8%. It’s been stronger since, and we’re now back near our entry price. Management is presenting at an investor conference today and will be at another next week. These types of events can help move stocks like this. Keeping at buy. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
