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Small-Cap Confidential
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February 10, 2022

The S&P 600 SmallCap index continues to firm up and even make some progress moving off support near the 102 level (the IJR ETF is at 107 now).

The S&P 600 SmallCap index continues to firm up and even make some progress moving off support near the 102 level (the IJR ETF is at 107 now).

At the same time, growth-oriented stocks have firmed up and even made upside progress over the last week. Most of our positions are up double digits since last Thursday and some, like CS DISCO (LAW) and Revolve (RVLV) are up 25% to 30%.

This is the bounce that we had been expecting would come a while ago. Better late than never.

From here growthy stocks have their work cut out for them. Today’s inflation reading (7.5%, a 40-year high) and the 10-year yield jumping to 2% are a little sobering. However, at the same time, these things aren’t totally unexpected and there are plenty of forecasts saying inflation will ease as we move through the year.

Still, it’s a market in which we want to tread carefully. While several names have popped on blowout earnings reports there are many examples of stocks that have done the complete opposite. So much depends on how 2022 guidance falls and where individual stock valuations lie relative to peers, history, etc.

In short, it’s not an easy market to navigate and at these times the best thing to do is have plenty of cash available and not lean too heavy in any direction.

To be clear, I’m not overly bearish. I think many of our names have the potential to make nice upside moves in the coming weeks, and my list of potential new additions is getting longer.

But we’re also in an environment where the broad market could reverse course intraday (either up to down, or down to up) and the reality is – barring company-specific news, catalysts, etc. – individual stocks are likely to go with the flow rather than strike out on their own.

Bottom line – it’s a take it day-by-day and week-by-week type market.

Given the recent bump up in prices I’m moving two of our stronger stocks to hold today while also moving one of the weakening ones to hold

Recent Changes
Inspire Medical Systems (INSP) moves to HOLD
Revolve (RVLV) moves to HOLD
Thunderbird Entertainment (THBRF, TBRD.CA) moves to HOLD

Arena Pharmaceuticals (ARNA) is trading back near all-time highs (93.8 today) as we move closer to the expected sale of the company to Pfizer (PFE) (expected to close by March 31) for 100 a share. Arena management will give a business update and release Q4 results on February 23. We’re holding half of our position as we expect to get the full 100 a share if we wait a bit longer. SOLD HALF, HOLD HALF
Earnings: Wednesday, February 23

Avalara (AVLR) will report Q4 results this afternoon. Consensus estimates are calling for revenue of $184.4 million (+27%) and adjusted EPS of -$0.08. There have been rumblings of concern that the e-commerce part of the business could be slowing (a general concern affecting e-commerce retailers in general). But given the way the company structures contracts, any slowdown in e-commerce would be spread out over many contracts (i.e., several years). We’ll hear about all the moving parts later today. I generally don’t advise buying right before earnings but have had AVLR at buy for some time so I’m not changing my rating today. We’ll stick with AVLR through this event and see how the chips fall. BUY
Earnings: Thursday, February 10

CS DISCO (LAW) has been making progress recovering from the 30 level and, at 40, now is on the verge of doing the real hard work – closing the 12-point gap that was opened back in mid-November when LAW slid from 52 to 40 over just three sessions. I currently have at buy, and with earnings now two weeks away I think LAW can make more upside progress before the report. BUY
Earnings: Thursday, February 24

Everbridge (EVBG) will report on February 24. The CEO David Meredith is now gone. With shares beat-up it seems there is upside IF management can clear the air and illustrate that the company is on firm footing. That’s a big if. We will likely ride it out with our final quarter position. HOLD
Earnings: Thursday, February 24

Inspire Medical Systems (INSP) announced Q4 results earlier this week in what was a non-event given they pre-released numbers three weeks ago at the J.P. Morgan Healthcare Conference (I detailed at the time). We did get updated 2022 sales guidance that was a little better than expected though. Management sees 2022 revenue of $318 - $326 million (up 36% - 40%), better than $313 million consensus. Inspire tends to beat, and there’s no reason to think they’re not positioning guidance with this in mind. With COVID trends moving in the right direction and Inspire’s relative success managing through the pandemic the business should continue to do very well. That said, shares are bumping up against resistance at 250 and MedTech stocks aren’t the strongest out there. Let’s sit on our current position and see how things go in the coming weeks. HOLD

JOANN (JOAN) has been one of our stronger-performing positions lately, and shares have filled the gap from the -20% drop back in September. I believe the stock has worked its way through enough noise that it can continue to perform well, though I’m not calling for an immediate return to all-time highs. With a 3.2% yield today and growing interest in small-cap value stocks among investors we’ll keep at buy. BUY

Nova LTD (NVM) was last week’s new addition and the stock is up roughly 5% since being added. Recall that Nova is a leading provider of dimensional and materials metrology solutions for process control used in semiconductor manufacturing. Nova’s products are used by the world’s largest IC manufacturers to help them improve performance, enhance product yield, and speed up time to market. This type of capital equipment is sold all over the world (including into China given Nova’s presence in Israel). The full-year 2021 consensus calls for revenue growth of 52% ($410 million) and adjusted EPS growth of 85% ($3.81). Looking forward into 2022, analysts are currently looking for revenue growth of 17% ($480 million) and adjusted EPS growth of 14% ($4.35). Q4 results will be released on February 24. BUY
Earnings: Thursday, February 24

Rani Therapeutics (RANI) is bouncing around without any real direction. Given that catalysts (trial updates) will drive this stock, the best thing to do is sit back and let it do its thing, while trying to buy on weakness. BUY

Revolve (RVLV) has been moving higher nicely and is now up 50% from the January low. We saw the stock dip a little last week, but once Amazon’s (AMZN) report came out RVLV began to strengthen. We have a couple more weeks until earnings are due out. I think the “easy” money has been made in this bounce so we’re going to be a little conservative and move RVLV back to hold until we get the earnings report. HOLD
Earnings: Wednesday, February 23

Repligen (RGEN) will report next Thursday before the market opens. Management has maintained guidance for $200 million in COVID-related revenue in 2022. Having briefly reviewed reports from larger peers Danaher (DHR), Thermo Fisher Scientific (TMO) and Avantor (AVTR), I believe Repligen will hit its numbers and talk about a very strong base business for 2022 and 2023. Big picture, there is some noise with these businesses given the mix of Covid-related revenue (some more so than others, and some with more diagnostic than vaccine mix). I think investors are trying to grapple with what the normalized growth trajectory is and, given that might take some time to get a better handle on, the stocks may bounce around for a while without making any real upside progress. In my view that makes RGEN a hold. Zooming way out, this the only SMID cap bioprocessing company out there and management has a strong history of leading on the technology front. I think that will mean RGEN outperforms over the long term so keeping at hold. HOLD
Earnings: Thursday, February 17

SiTime (SITM) reported Q4 results last Wednesday (2/2) that handily beat expectations. Revenue of $75.7 million was up 88% and beat by $4.7 million while adjusted EPS of $1.32 was up 207% and beat by $0.23. Gross margins increased 2.5% to 69.4%. The company ended the quarter with $559 million in cash (partially thanks to $460 million raised through equity offerings in 2021) and no debt. Management sees revenue growth of at least 35% in 2022. That’s well above the 28% revenue growth analysts were looking for prior to the earnings report. One potential challenge is rising costs. Management said Taiwan Semiconductor (TSM) is raising prices by 20% for the nodes SiTime uses and that is going to cost 2% to 3% in gross margin beginning in Q2. That was probably the reasons shares fell 17% the next day (a rough market didn’t help). Over the last week, shares of SITM have begun to recover and are currently 5% below where they were trading heading into earnings. The Semiconductor ETF (SOXX) has been recovering as well. I’m not pounding the table on SITM right now but am also not ready to bail as I think the recent action is encouraging. Maintaining at hold. HOLD
Earnings: Done

Shutterstock (SSTK) reported Q4 earnings this morning that surpassed expectations, but the stock is down roughly 8% today. So far is has found support near 83 (the previous low from a couple weeks ago). Revenue of $205.8 million (+14%) beat by $3.9 million, and adjusted EPS of $0.77 beat by $0.29. Management guided for 2022 revenue of $835 - $850 million ($840 million expected) and adjusted EPS of $3.65 - $3.80 ($3.52 expected). The company will continue to buy back shares (I suspect it’s doing so today). There was a lot of talk on the call about progress Shutterstock is making with acquired asset integrations and positioning in different markets for things like the metaverse, NFTs, filing, gaming, video, 3D services, etc. There are definitely some moving parts here and it wasn’t a blowout quarter. For now, we’ll keep at buy provided SSTK holds above 83. But I’ll be watching it closely for any signs of weakness. BUY
Earnings: Done

Sprout Social (SPT) has had a constructive couple of weeks and is trading back in the high 70s and just below the 50-day moving average line (at 80.25). Earnings come out on February 22. We’re looking for Q4 revenue growth of 37% ($51.3 million) and adjusted EPS of -$0.07. In 2022 we’re expecting revenue growth of 26% ($240 million) and adjusted EPS of -$0.15 (flat year over year). There should be upside to these numbers. Sprout has beaten revenue expectations in all of the last eight quarters (average beat of 3%) as well as its own quarterly guidance (average beat of 2.7%). No guarantees the trend holds but the company has been hiring and appears to be in a strong position. SOLD A QUARTER, HOLD REST
Earnings: Tuesday, February 22

Thunderbird Entertainment (THBRF, TBRD.CA) drifted lower in January and the dive in Netflix (NFLX) seemed to drive another bout of modest weakness. Over the last couple of weeks, the stock has firmed up in the 3.8 to 4.0 range. There’s been no reaction after the Disney (DIS) report (strong streaming numbers). We’re going to move to hold today since the stock is down -17% from our entry point and isn’t fully broken, but also isn’t working. We need an update on progress in the gaming and consumer products division to get investors re-engaged in the story. HOLD

Xometry (XMTR) reported preliminary results on January 31 (revenue within the expected range and above Q4 guidance) and announced a convertible note offering ($250 million). I detailed all this on February 1. Pricing for the note offering was announced a few days later and was fine. We were closely watching the 40 level as an area of support that had to hold. So far it has. In fact, XMTR has since moved back to 50, which is just above the 50-day moving average line. Xometry has recently announced a couple platform upgrades, including the integration of the Factory Four acquired tech (helps suppliers have a better view of all their orders, including w/the newly acquired platform) and the release of Xometry Partner badges on, which seems like a quick way to begin integrating these businesses. Revenue is seen up 76% next year after rising 49% in 2021. BUY

Please email me at with any questions or comments about any of our stocks, or anything else on your mind.

Stock NameDate BoughtPrice BoughtPrice on 2/10/22ProfitRating
Arena Pharmaceuticals (ARNA)2/2/183994141%Hold Half
Avalara (AVLR)2/1/1940112179%Buy
CS Disco (LAW)9/2/215739-32%Buy
Everbridge (EVBG)12/2/161654247%Hold
Inspire Medical (INSP)10/4/1959233299%Hold
JOANN (JOAN)8/6/211513-18%Buy
Nova LTD (NVMI)2/3/221131184%Buy
Rani Therapeutics (RANI)10/7/2117171%Buy
Repligen (RGEN)11/2/18 and 12/31/1859193226%Hold
Revolve Group, Inc. (RVLV)4/1/21466135%Hold
Shutterstock (SSTK)11/4/2112185-29%Buy
SiTime Corporation (SITM)12/2/21296211-29%Hold
Sprout Social (SPT)9/3/203675105%Hold
Thunderbird Entertainment
Xometry (XMTR)1/6/225349-7%Buy