The big picture this week is much the same as last week. In fact, the S&P 600 Small Cap Index closed today just a fraction off where it closed last Thursday. The same applies to the Nasdaq, while the S&P 500 is up modestly.
Investors continue to be focused on the inflation picture, the Delta variant, the current administration’s economic policies and, of course, earnings season. Given that earnings reports are a single event in time this is where attention will be focused in the coming weeks.
In our portfolio earnings action won’t start until the week after next, then the beginning of August will get very busy. I’ll detail expected results as dates for our individual positions draw closer.
In terms of how we should look at the pullback in most growth stocks this week, it’s something to keep an eye on but isn’t changing my approach. After a prolonged period of weakness this spring, growth stocks regained their mojo in June and it’s not surprising they are giving a little back now. Of course, we will keep an eye on our stocks and make any necessary adjustments as we move forward. But for now, all ratings remain the same, with one exception.
On that note, we let go of one stock today that’s not working out. More on that below.
Recent Changes
Funko (FNKO) Moves to SELL
Updates
Accolade (ACCD) reported last Thursday, and I detailed the results in a Special Bulletin on Friday. It was a great quarter and most importantly revenue growth is solid, and the acquired companies appear to be outperforming. In the wake of the earnings report most analysts have bumped up their price targets, with many now landing in the 60 to 68 range (stock closed at 50.2 yesterday). On Friday Accolade filed a mixed-shelf prospectus of undisclosed size that also included a resale prospectus for certain shareholders to sell up to 7.1 million shares. There are not dates specified. The purpose of this type of filing is to give management the opportunity to offer shares when they see fit, and to provide liquidation options for certain institutional investors. It’s not great, but also not uncommon, especially for companies that are relatively new to the public market. In this case I fully expect Accolade will continue to hunt for accretive acquisitions so having access to capital makes sense. Keeping at buy. BUY
Earnings: Done
Arena Pharmaceuticals (ARNA) has pulled back 7% over the last two weeks and is now trading just below its 50-day line. There’s no news behind the move, and the dip is roughly in line with what we’re seeing in the broader biotech space as measured by the iShares Biotech ETF (IBB). Keeping at buy for now. BUY
Avalara (AVLR) continues to advance products to address changes in EU markets. The latest is a series of updates that will help businesses address new value-added tax (VAT) rules for the EU that took effect at the beginning of July. The stock has pulled back with other growth stocks this week and is now trading just below the 150 level, which was where it found resistance back in April. We’d like to see it hold up here. Earnings are expected around August 4. BUY
Cerence (CRNC) does a good job of getting press releases out to keep investors informed. The latest details a collaboration with Alphavan, a premium caravan company that outfits Mercedes-Benz Sprinter-based camper vans. The duo will release the Cerence Tour Guide solution, an Alphavan-branded mobile app that provides “… professional, guided tour content for drivers and passengers to enjoy throughout their camper van journeys.” This isn’t going to move the needle, but it’s interesting. The stock is off 6% over the past week. BUY
Everbridge (EVBG) had a nice rally going until this week, when shares have fallen 7% on no new news. Earnings are confirmed for August 9. Keeping at buy. BUY
Earnings: Monday, August 9
Funko (FNKO) continues to slide and a slew of insider sales during this retreat isn’t a great look, though some of those sales likely follow options conversions. In any event, the stock isn’t doing its job, and in this market there’s little incentive to hold and hope when a new position isn’t holding up. FNKO gets kicked to the curb today. I’ll keep an eye on it and consider adding back if things improve. SELL
Fiverr (FVRR) has pulled back to its 50-day line this week. The bottom line here is that the stock is going to bounce around until we get to earnings and hear what the latest trends are. We have a date of August 5. Keep holding. HOLD
Earnings: Thursday, August 5
Inspire Medical Systems (INSP) has been volatile lately and we’re learning that it’s related to speculation around where reimbursement rates will fall. If you remember from previous updates, management worked on, and received, a dedicated Category 1 CPT code that includes the neurostimulator, stimulation lead and sensing lead. This was intended to help the company get a higher reimbursement rate as compared to the coding that was shared with vagus nerve stimulation, which arguably requires less work. All the coding here is complex, but the bottom line is that the Centers for Medicare & Medicaid Services (CMS) has recommended a 13% reduction for “all-in” reimbursement rates. This factors in that there were actually two codes for Inspire Therapy before (the sensing lead was a second code). The new all-in rate is around $984 versus $1,136 before. That’s not completely out of line with investor expectations, but in the current environment meeting expectations isn’t always enough. Of note, as JP Morgan highlights, commercial reimbursement amounts to 70% of procedures and pays 1.4-times the Medicare rate (i.e., $1,350) and facility reimbursement is not affected at all ($25,000 to $30,000, depending on the facility). Also, the new two-incision procedure currently accounts for 90% of procedures and has a higher per minute payment ($11 versus $8). The bottom line here is that the new CMS rate isn’t terrific, but in the grand scheme of things it is just one of many moving parts and shouldn’t affect things too much. That said, the stock isn’t shrugging things off just yet, so we’ll keep at hold. HOLD HALF
Kornit Digital (KRNT) hasn’t given us much to talk about lately and to be perfectly honest, I’m just fine with that. The stock is trading within 10% of an all-time high. As mentioned last week Barenberg picked up coverage with a 147 price target. Earnings should be out around August 11. BUY
On24 (ONTF) is up modestly over the past week on no new news. The company offers a cloud-based digital experience platform to facilitate business-to-business (B2B) sales. 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. With trends in the Delta variant, that just may be the scenario. We should have earnings toward the end of the month. BUY
Porch Group (PRCH) has pulled back from 20 to 17 over the past two weeks and is now trading near its 50-day line. Like many software stocks, news flow has dried up since earnings reports are just around the corner. For Porch Group we’re looking for earnings out around the 11th of August. Keeping at buy. BUY
Q2 Holdings (QTWO) announced an earnings date of August 4. With the current pullback in tech, shares are off 5% in the past week and just below the 50-day line. No new company-specific news. BUY
Revolve (RVLV) has been bouncing around in the 60 to 70 range for a few weeks. We moved to hold a couple weeks ago since it seemed the stock was getting a little ahead of itself. Given that we already pulled in our expectations here, the recent weakness (RVLV is only 12% off the all-time high) is not concerning. HOLD
Repligen (RGEN) pulled back modestly this week but was one of the few stocks that traded up today. The trends in the Delta variant may actually be a positive for the stock given expectations are that Repligen is currently moving past peak COVID-19-related revenue. BUY
Sprout Social (SPT) will report earnings on August 3. I moved the stock to hold on June 24 since it had gone crazy to the upside and given what we see now (stock pulled back 9% this week) that was the right move. I still like the stock and think it just needs some time to consolidate the gains. Keeping at hold. HOLD
Earnings: Tuesday, August 3
Thunderbird Entertainment (THBRF, TBRD.CA) has held up nicely this week and is currently trading around our entry point. Nothing new to report. 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.
