Please ensure Javascript is enabled for purposes of website accessibility
Small-Cap Confidential
Undiscovered stocks that can make you rich

Cabot Small-Cap Confidential Weekly Update

The market hit an air pocket last week but has since stabilized. It didn’t hurt that revised U.S. GDP figures for Q4 came in 0.2% higher than previously reported. That improvement bumped growth up to 2.1%. On the back of that good news, small caps regained their 50-day moving average line (they’re now up four straight days).

The market hit an air pocket last week but has since stabilized. It didn’t hurt that revised U.S. GDP figures for Q4 came in 0.2% higher than previously reported. That improvement bumped growth up to 2.1%. On the back of that good news, small caps regained their 50-day moving average line (they’re now up four straight days).

During last week’s retreat the S&P 600 Small Cap Index held above 810. That means we’re holding on to the majority of the post-election rally, and now have a trading range in the 810 to 860 zone that’s becoming more established.

s&p chart

Most of our stocks recovered some of last week’s drops as well. Eight of our 10 positions were in the black this week. One stock, Marrone Bio (MBII), reported earnings. And U.S. Concrete (USCR) began to recover after a troubling press release last week.

Here’s what’s new with each position.


Airgain (AIRG) After recovering from 12 to 14 over the first three weeks of March, Airgain is now trying to poke its head above its 50-day moving average line. Yesterday’s 6.8% move accounted for the bulk of the stock’s 7.5% gain over the past week. The company hired a new Director of Investor Relations, which should help it get the word out and communicate its story to the Street. BUY.

Asure Software (ASUR) After last week’s disappointing post-earnings performance Asure stabilized this week, and made a reasonably strong move off 10 support on Monday. I see that level as important since it marks the low range of the early January breakout. With a little luck we’ll be able to chalk up last week’s drop more to broad market concerns than stock-specific ones. Given the improving price trend—the stock is up almost 4% over the past week—I’m keeping ASUR at Buy. BUY.

Everbridge (EVBG) The market seemed relieved that Everbridge finally announced the expected offering from existing shareholders last week. On Wednesday shares jumped above 21 to hit a 52-week high. That’s not a sign of lackluster demand! Still, we’re up around 30% and I want to let the dust settle from the secondary before moving back to Buy. HOLD.

LogMeIn (LOGM) The stock was up 3% this week and is eyeing the 100 threshold again. The good news is that the stock held well above 90 (it bottomed out at 92.72 last week) and is just about back to its intermediate-term trend line. Keep holding. HOLD HALF.

Marrone Bio (MBII) We’ve been eagerly awaiting Marrone’s Q4 report and we finally got it on Wednesday. Heading into this week the stock had been trending down. But it popped from a low of 1.70 on Monday to a high of 2.30 before reporting on Wednesday. After earnings, it has given up some of its gain (on lower trading volume) to settle at 2.05 by yesterday’s close. The biggest concern here remains capital – the company has $12.6 million in cash, which works out to less than two quarters of cash left to fund operating losses given that $3 million is restricted. A new line of credit on receivables might extend that out to two, maybe three quarters. But Marrone still has a lot of debt with $12.5 million due in October. That needs to be dealt with.

But the company’s performance beyond the debt is great. In Q4, revenue was up 41% to $2.7 million and the company shipped a record $5.2 million worth of product (this is now classified as deferred revenue, and will be reported over the next couple of quarters). Gross margin was 39%, which is very good news. These performance metrics are in-line with my expectations, which are different from consensus figures (which you should ignore for this stock). Management also said it is likely to ship more in Q1 than it did in Q4. It had some third party production issues for its Grandevo WDG manufacturing, which cut into revenue. So plans are in the works to bring production in-house at the Michigan facility by late fall.

Management talked a lot about the success it’s having on the product front, including recently launched Haven (anti-transpirant to reduce plant stress), MBI-601 (biofumigant to replace toxic chemicals) which has received EPA registration, and MBI-110 (biofungicide to complement Regalia), which is in field trials and should receive EPA approval in Q3. And MBI-010 (a bioherbicide to kill weeds) is in the works too. Management also talked about strategic partnerships, which sound like they’re progressing, although details on revenue and performance metrics were not revealed.

All of this sounds good – the company just needs the capital to keep marching forward with its growth plans. The first half of the year is typically the strongest selling time, so I have high hopes for Marrone’s ability to reduce operating losses over the next two quarters. That could give it a little more breathing room to raise capital. It could also refinance some debt, with priority going to the $12.5 million loan due in October. I would think pushing that due date back a year would be the bare minimum, but refinancing it completely and reducing the interest rate (from a horrible 18%) would seem possible given the company’s improved financial performance. But you never know what discussions are going on behind closed doors. Also, Marrone could ink a strategic partnership and/or sell part of itself to a strategic investor to give a little more breathing room. And finally, it could complete a dilutive secondary offering, which I would think is the last resort given the depressed stock price. That said, you may recall from my original research report that I’m assuming the company increases the share count by roughly 25% through an equity offering at some point so that it can pay down debt. This is the main reason I’ve continued to recommend just buying a half position. If we wake up some day to a 25% dilution event and the stock is down significantly we are still in a position to buy, not sell! Our plan is to potentially increase this to a full position once capital concerns are significantly reduced. This is what early-stage investing is all about. So please keep this in the back of your mind with this stock. Keeping at Buy. BUY HALF A POSITION.

MindBody (MB) MindBody keeps trending higher and looks like it’s in great shape. We learned this week that the company has acquired Lymber, a business that developed a yield management solution on the MindBody platform. Integration should be a snap since the solution is already part of the MindBody universe. We don’t know precise revenue numbers, but strategically I like the move. Yield management is huge in this type of business (as it is with airlines, hotels, restaurants, etc.) and anything MindBody can do to help its customers improve their yield is good. It puts more money in the customers’ pocket, and more money in MindBody’s too. HOLD.

Ooma (OOMA) The stock is little changed this week as it’s still trading right around its 50-day moving average line, which continues to trend upward. It’s going to be very interesting to hear how the WeWork partnership is working out on next quarter’s earnings call. Unfortunately, we’ll have to be patient since we just heard last quarter’s results. But I think it will be worth waiting for. Keeping at Buy. BUY.

Primo Water (PRMW) The stock hasn’t performed well since early February and is now just above its long-term moving average line. Historically, it’s bounced off this level, so at the moment I’m not concerned. Keep holding. HOLD.

Q2 Holdings (QTWO) It’s nice to see some stability after the earnings-inspired move to the mid-30s. Shares are now one month into a consolidation phase in the 34.50 to 36.50 zone. Continue to hold. HOLD.

U.S. Concrete (USCR) Last week’s drop was a bit of a heart stopper but the stock has quickly recovered some of its losses and is now back above 63. A few analysts have come out in support of the stock and have said that the CFO’s departure is unrelated to the change to a new auditor. I find that assertion a little hard to believe. But I also don’t think the decisions reflect a doomsday scenario for the company. I moved to Hold after the announcement and even though the stock is up a little over the past week, I still think Hold is the right call. This assumes you already own the stock, of course. If you don’t own any but like the company, I could see buying an initial position here. Just keep it small until the smoke clears. HOLD.

csc chart