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Early Opportunities
Get in Before the Crowd

Cabot Early Opportunities Issue: September 21, 2022


Stocks in This Issue

Stock NameMarket CapPriceInvestment TypeCurrent Rating
MakeMyTrip Ltd. (MMYT)$3.52 billion32.3Rapid Growth – Online Travel (India)Watch
Pinterest (PINS)$16.8 billion24.8Growth – Social Media PlatformBuy 1/2
Privia Health Group (PRVA)$4.15 billion37.2Growth – Health Care SoftwareWatch
Snowflake (SNOW)$58.4 billion183Rapid Growth – Data SoftwareWatch
Xponential Fitness (XPOF)
$951 million 19.3Rapid Growth – Fitness StudiosBuy

Just Do It!


Is there anything worse than somebody telling you they’re going to do something that will hurt, then dragging it out so it takes way longer than necessary?
I don’t think so.

Imagine a parent telling their kid, “Hey, I’m going to pull that band-aid off reeeeeal slow. And it’s going to hurt the entire time. Oh yeah, way more painful this way than if I just rip it off. But that’s the plan!”

Or a contractor saying, “We need to gut your kitchen because of that leak. But I only have one guy available. It’s going to take him a couple weeks to pull it all apart, then about a month to put it back together. If I could just send my full crew, we’d have you apart and back together in a week. But no can do.”

This is the equivalent of what the Fed is doing.

They’re putting downward pressure on the economy (and the market) by raising rates and shrinking their balance sheet.

It seems like they’re doing it slowly. I know, I know. Rate hikes of 75bps aren’t exactly small.

But when you know they’re going to keep doing it until they get to a Fed Funds rate around 4% to 4.5% (the 2-Year Treasury yield was just below 4% yesterday) there’s no mystery. Just waiting.

Maybe it would be better to just get it over with. Do 100bps now and then go to 50bps or 25bps, depending. Especially since there is no meeting next month.

Later today the Fed wraps up its two-day conference and will announce the magnitude of the next rate hike. The current target rate is 2.25% to 2.5%. The odds-on favorite (82% chance) is that they’ll hike by 75bps. That would take the target rate to a range of 3% to 3.25%.

Nobody knows how the market will react to that decision. But I think there’s an argument to be made that going straight to a 100bps hike (i.e., target rate of 3.25% to 3.5%) would be better.

Maybe it’s time to rip the band-aid off. More pain up front equals less pain later. The market is forward looking and, as we saw in July and the first half of August when the market firmed up, investors crave more clarity on when this rate hike cycle will end. And when a more stable rate environment will take hold.

I know nothing happens in a vacuum. And putting on my Captain Obvious hat here I’ll state for the record that I understand interest rate policy is complex stuff.

But all the same, I’m just putting it out there that 100 bps might just be what the market needs.

What to Do Now

We have no idea how today’s rate hike announcement will affect the markets or how the rest of the week (let alone the rest of the month) will go. So, in the very short term, it’s best not to overcommit to anything.

In the next day or two I’ll digest the Fed’s decision, and the market’s reaction, and touch base on what moves (if any) are needed. Until then, all current buy/hold/sell ratings reflect my views on each of our positions given what we know and can rationally speculate on at the moment.

That said, stepping back from the next few days, it seems we are in the latter innings of this rate hike cycle. That doesn’t mean the market is going to take off soon. But it does mean there’s considerable potential for 2023 to be a far better year than 2022, especially for growthier names. Valuations are down, sentiment is down (Bull/Bear Ratio now below 1.0), there’s a lot of bad news out there. These are typically good times to be looking to buy ... if you can afford to be patient and swing with the volatility.

MakeMyTrip Limited (MMYT)

With the pandemic continuing to fade and international travel picking up, there’s a potential opportunity among online travel agents.
MakeMyTrip (MMYT) is one of the lesser-known options in the U.S. given that it is an Indian company. But in its domestic market the company is the clear leader with over 45% market share. That puts it in the pole position should travel continue to enjoy a rebound.

MakeMyTrip is diversified across air tickets (61% of revenue), hotels (25%) and bus tickets (14%). This diversification is relatively new. A few years ago, the company was much more leveraged to air tickets. But a series of acquisitions and other initiatives have helped make the business more durable.

The pandemic also reduced competition in the Indian market and gave MakeMyTrip a chance to strip costs out of the business and increase its focus on sticky markets, such as business travel and bus travel. The company now has 98% market share in bus ticketing.

MakeMyTrip enjoys considerable customer loyalty (70% of transactions from repeat customers). High customer retention has helped its bottom line too since MakeMyTrip now pays far less in customer acquisition costs.

Add in an upswing in business travel, potentially leveling off fuel prices and fewer promotions (due to higher demand) and the stars may just be aligned for the stock.

The company’s fiscal year ended in March so 2022 is already in the books. Revenue growth of 86% (to $304 million) reflects the initial phase of the recovery after a horrible fiscal 2021, in which revenue fell 68%.

In fiscal 2023 analysts see revenue growing 111% to $640 million. Adjusted EPS will likely be negative, but not by much.

Moving into fiscal 2024, the revenue growth trajectory will have cooled, but MakeMyTrip will be benefiting from more steady growth across all business segments. Revenue should be up by around 36% and EPS could be above $0.30. We’ll add it to the Watch List today.

The Stock
While MMYT is not a recent IPO (it came public in 2010) the potential near-term opportunity (next 12 months) is significant enough to put it on my radar. The stock has been rangebound between 20 and 40 since the end of 2020. The current price near 32.3 puts MMYT just 11% below the 12-month high of 36.3 from November. Between then and now the stock had mostly traded in the 20 to 30 range. MMYT moved above 30 after the Q1 fiscal 2023 report in late July and since the beginning of August has been consolidating in the 31 to 45 range. WATCH


Pinterest (PINS)

Pinterest (PINS) doesn’t need much of an introduction. But for those that forgot what it does, the company is a social media platform that helps people share images and short videos, known as pins.

These pins are typically used for sharing ideas for home decoration, remodeling, training for athletic events, places to visit/travel, what to wear, what to cook, makeup ideas and things like that.

The company has over 430 million users around the world completing a few billion searches every month.

That’s the user side of the equation. The business model isn’t all about providing inspiration for free, however.

Pinterest is a very powerful advertising platform that’s extremely good at monetizing the user base. Advertisers use Promoted Pins to reach users on the platform and inspire them to purchase advertised goods and services.

It’s still mostly a U.S. growth story as around 80% of revenue comes from the U.S. But international is significant and is growing especially quickly outside of Europe (rest of world (ROW) was up 71% in Q2).

As one of the big pandemic stocks, PINS may have a tarnished reputation now. Some of that is valid. The days of 50% revenue growth are likely a thing of the past.

But the company may well have seen a bottoming in terms of users leaving the platform after they overindulged during the pandemic. A looming winter may help them come back in greater numbers than expected.

Pinterest’s Q2 result showed that global monthly average users stand at 433 million, flat versus Q1 and down 5% versus a year ago.

Average revenue per user (ARPU) grew 17% in the quarter (to $1.54) with North America leading the way (ARPU up 20% to $5.82) while Europe grew 19% (to $0.86) and ROW grew 67% (to $0.10).

The bottom line from Q2 was revenue grew 9% to $666 million and EPS came in at $0.11. Those growth numbers pale in comparison to the go-go growth days leading up to and during the pandemic.

But for those looking for a bad-to-better story with a household name in social, this just may fit the bill.

For the full year 2022, PINS is seen growing revenue by 9% (to $2.8 billion) and delivering EPS of $0.55 (50% below last year). Then 2023 looks better with revenue expanding 15% to $3.22 billion and EPS up 30% to $0.70.

The Stock
PINS was one of the big social media stock winners during the pandemic and has been among the biggest losers over the last year. Shares are roughly 60% off the high. But PINS is showing encouraging signs for those willing to look closely enough. Shares just popped out of a long trough spanning three quarters where they traded in the 16 to 24 range. At 24.8 the stock is now just above that range and is flirting with a move above its 200-day moving average line. BUY HALF


Privia Health (PRVA)

Privia Health (PRVA) is a healthcare-focused software company with a platform that helps physician practices transition to a value-based care reimbursement model, reduce administrative time/costs and engage patients with user-friendly technology.

It has an interesting business model. In essence, physician practices join Privia-owned Medical Groups in their geographic market as partner practices. This gives them access to Privia’s core services, including workflow and administrative management tools, pooled contract negotiating power, community-focused tools and more.

At the same time, practices maintain a reasonable amount of autonomy to run their practices how they choose, just without so many headaches.

Privia also offers a more flexible provider affiliation model in which providers don’t join a Medical Group but still get value-based transition help, population health services and reporting and analytics tools.

Given its business model, Privia isn’t the type of company that physician practices anywhere can join. It is focused on specific markets, including Maryland, Virginia, the District of Columbia, Tennessee, Georgia, Florida, Texas and California.

With just 3.5% of providers in target markets on its platform, Privia has barely scratched the surface of its market opportunity, which is estimated at $726 billion.

It’s making progress, and a rebound in the healthcare market coupled with a transition to value-based care models is helping.

Revenue growth of 18% in 2021 should accelerate to 35% ($1.3 billion) this year. Estimates for 15% revenue growth in 2023 could easily prove conservative. Privia is not profitable yet (expected EPS for 2022 is -$0.30) but should deliver positive EPS of $0.09 in 2023.

The Stock
PRVA came public in April 2021 at 23 and soared 51% the first day. The stock reached an all-time high of 50.8 on June 29. That was when the bull market was still alive. In classic post-IPO fashion, and with the bull market fade, PRVA slid through the summer months and landed with a thud at 20.4 on October 6. The stock traded mostly in the 18 to 29 range through June 2022 then broke out above 30 on high volume on July 5. PRVA gained altitude through August 24 when it peaked at 44.6. A short dip to 37 was followed by a retest of the 44 level last week, which failed. PRVA has since fallen back near 37, where it sits on its 50-day line. We’ll monitor it here via our Watch List. WATCH


Snowflake (SNOW)

We’ve taken a few stabs at Snowflake (SNOW) and haven’t made money on it yet. But it remains one of those rare companies that post insane growth at scale and should be a long-term winner. So, in my mind, it’s really more about determining when to buy than if to buy.

After a very impressive Q2, that time to buy may be here. I’ll get to the quarter in a second. First, a quick recap on why Snowflake is so special.

Snowflake is a hyper-growth stock that has brought the benefits of public clouds (scalability, flexibility, etc.) to data management so customers can better understand their data.

The company has developed a disruptive, cloud-native data warehouse solution that is becoming part of nearly every cloud data warehousing discussion, included with offerings from Microsoft (MSFT), Alphabet (GOOG) and Amazon (AMZN).

The technology is cloud-agnostic, hugely scalable, very flexible, easy to use, and different from other options in the market. So much so that Snowflake has the potential to create its own market, currently referred to as the Data Cloud.

As this Data Cloud emerges, we will see a network of data providers and consumers all sharing and analyzing data across clouds and across the world. Those not in the network will want in as the value of being “inside” grows exponentially and the drawbacks to being “outside” mount.

That future is becoming reality as management and some of Snowflake’s sales partners say it’s not so much about selling Snowflake – because customers know they need it – it’s more about selling the data warehousing environment that surrounds the solution.

As an example, management referred to the new Snowpark solution (allows code development and deployment to happen inside Snowflake’s virtual data warehouse) on the Q2 call, saying customers are “trying to tear it out of our hands.”

Incredibly, management also said they are not seeing weakness in Europe (at least not yet).

The bottom line is that Q2 revenue was up 83% to $497 million. For the full year, revenue growth is seen around 67% and still above 50% in 2024. That’s impressive for a company of this size. Snowflake is just turning profitable on an adjusted basis and is seen delivering adjusted EPS of around $0.14 this year.

The Stock
SNOW came public at 120 in September 2020 and jumped 112% the first day. After chopping around in the 200 to 300 range for a few months, shares shot up to 429 in December 2020. SNOW fell back to 185 by mid-May then went on a six-month tear that carried it back to 405 by mid-November 2021. The next drawdown was rough. SNOW finally landed at 110 on June 14. It has been making a series of higher highs and higher lows since, though the recent high of 206 (August 26) was retested last week and SNOW failed to break out. WATCH



Xponential Fitness (XPOF)

We added Xponential Fitness (XPOF) to our Watch List back in April and the stock has had a heck of a journey since then, falling more than 50% since I’ve been keeping an eye on it. But the fundamentals continue to improve and that’s pulling investors in, as evidenced by the stock’s recovery since this summer and the “pop and hold” following the August 11 Q2 report.

If you forgot what the company does, Xponential is the largest franchisor of boutique fitness brands in the U.S. It has roughly 2,000 studios across 48 states. It also has over 175 studios open in 11 foreign markets.

The company’s brands cross several verticals including Pilates (Club Pilates), barre (Pure Barre), cycling (CycleBar), rowing (Row House), dance (AKT), yoga (YogaSix), running (Stride), boxing (Rumble), functional training (BFT), and stretching (StretchLab).

Xponential offers small class sizes in easy-to-access retail locations, often with several brands located in a “fitness row.” Most consumers are female, ages 20 to 60 years old. They can buy recurring memberships or just walk in. Retail locations sell both branded and third-party products.

One of the new initiatives spurring growth is XPASS, an offering with three different price points/classes that gives consumers access to all brands’ class offerings on one platform.

There is also the XPLUS virtual on-demand class offering ($19 - $29.99 per month) that offers access to all brands and gives consumers an alternative to Apple Fitness+ (AAPL) and Peloton (PTON).

Finally, Xponential is active on the partnership front too. A new partnership with L.A. Fitness and City Sports Club to add Xponential brands in more than 500 Fitness international locations. Buildout costs for these locations will be less than standalone studios. And the company just signed with Princess Cruises to bring at least eight of the company’s brands to each of Princess’ 15-ship fleets, meaning over 120 licensed studios will launch with the cruise line.

The company has been a rapid grower despite understandable challenges during the pandemic. Sales fell 20% in 2020 (pandemic) then surged by 49% to $155 million in 2021.

In Q2 revenue grew 66% as North American same-store sales jumped 25%. Revenue is on pace to grow by 42%, to $220 million, this year. Analysts see low to mid-20% growth in 2023.

Xponential is also on the verge of turning profitable in the upcoming quarter. That should push EPS into positive territory for the foreseeable future. Analysts see EPS of $0.31 this year and just over $1.00 in 2023.

The Stock
XPOF came public at 12 in July 2021 and, after an uneventful couple of months, the stock took off in late September and reached 24.7 on November 12. Shares lost altitude and fell to 12.9 heading into lockup expiration in mid-January 2022, then rallied to an all-time high of 26.9 by the end of March. Another big retreat then followed and XPOF bottomed at 11.2 on June 23. Since then, the stock has been better. It walked up to 16.3 ahead of the Q2 report, jumped above 20 afterward and has since traded in the 17.9 to 21.3 range. We’ll start with a half position around here. BUY


Previously Recommended Stocks

We have not been active sellers since the last Issue, selling just two positions this month. Those include Dutch Bros (BROS), sold last Friday, and our half position in Samsara (IOT), also sold last Friday.

Today, ahead of the Fed statement, we’re going to lock in partial profits on a positions. Estimated profits on these positions is as off late morning today.

First, let’s sell our trade idea Matador Resources (MTDR) for a roughly 16% gain. I’ve held on to this longer than anticipated hoping for a major breakout but in this environment I’m happy to book a 16% gain in two months and move on.

Let’s also sell another quarter of our position in (BILL) for a roughly 83% gain. The stock has recently fallen below its 50-day line. SELL 1/4, HOLD 1/4.

Finally, let’s sell a quarter position in Axonics (AXNX). I still love the stock and the story but it has recently failed to break out to new highs and if the market sells off high flyers like AXNX could come under pressure. Selling a quarter position seems about right here. SELL 1/4, HOLD 3/4

An updated table of all stocks rated BUY, HOLD and WATCH as well as recent stocks SOLD, is included below.

Please note that stocks rated BUY are suitable for purchasing now. In all cases, and especially recent IPOs, I suggest averaging into every stock to spread out your cost basis.

For stocks rated BUY A HALF, you should average into a position size that’s roughly half the dollar value of your typical position. We may do this when stocks have little trading history (for instance, IPOs), when there is more uncertainty in the market or with a stock than normal, or if a stock has recently jumped higher.

Those rated HOLD are stocks that still look good and are recommended to be kept in a long-term-oriented portfolio. Or they’ve pulled back a little and are under consideration for being dropped.

Stocks rated SOLD didn’t pan out, or the uptrend has run its course for the time being. They should be sold if you own them. SOLD stocks are listed in one monthly Issue, then they fall off the SOLD list.

Please use this list to keep up with my latest thinking, and don’t hesitate to email with any questions.

Company NameTickerDate CoveredRef Price9/21/2022Current GainNotesCurrent Rating
AirbnbABNB1/20/22 & 8/4/22139.02113.77-18%Top PickBuy
AxonicsAXNX5/18/2249.0973.6750%Top PickSold 1/4, Hold 3/4
Bill.comBILL6/17/2077.73143.9485%Took Partial GainsHold 1/2
CrowdStrikeCRWD12/17/1949.45173.29250%Took Partial GainsHold 1/4
Caribou BiosciencesCRBU5/18/2210.2911.3911%Buy 1/2
FiskerFSR2/17/21 & 4/20/2116.168.37-48%Hold
GitLabGTLB2/16/2273.4255.65-24%Top PickHold
Matador ResourcesMTDR7/20/2248.6656.3116%TradeHold
PinterestPINS9/21/22NEW24.72NEWBuy 1/2
SentinelOneS8/17/2227.6027.620%Top PickBuy
Shockwave MedicalSWAV3/16/22160.86294.2483%Took Partial GainsHold 1/2
Xponential FitnessXPOF9/21/22NEW20.24NEWTop PickBuy
MakeMyTrip Ltd.MMYT9/21/22NEW30.85NEWWatch
Mission ProduceAVO8/17/22-15.54-Watch
Option Care HealthOPCH7/20/22-31.51-Watch
Paya HoldingsPAYA8/17/22-5.98-Watch
PBF EnergyPBF6/15/22-29.71-Watch
Privia HealthPRVA9/21/22NEW37.48NEWWatch

^ Average of high and low price if published intraday, or closing price if published after 4 PM ET

Company NameTickerDate CoveredReference Price^Date SoldPrice Sold^Gain/lossNotes
PfizerPFE3/16/2252.737/18/202251.25-3%Top Pick
Shockwave MedicalSWAV3/16/22160.867/18/2022208.3730%Sold 1/2
Grocery OutletGO6/15/2238.327/29/202243.2213%Top Pick
Aris Water SolutionsARIS6/15/2219.048/16/202217.19-10%HOLD 1/2
Sprout SocialSPT2/19/2020.388/16/202263.03209%Sell Final 1/2
SamsaraIOT7/20/2214.859/16/202212.61-15%Bought 1/2, sold 1/2
Dutch BrosBROS7/20/2238.949/16/202234.42-12%Sold
Matador ResourcesMTDR7/20/2248.669/21/202256.19 (est.)15% (est.)Sold
Bill.comBILL6/17/2077.739/21/2022142.56 (est.)83% (est.)Sold 1/4, Hold 1/4
AxonicsAXNX5/18/2249.099/21/202273.78 (est.)50% (est.)Sold 1/4

^Average of high and low price if published intraday, or closing price if published after 4 PM ET

The next issue of Cabot Early Opportunities will be published on October 19, 2022.

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.