There was a lot going on in the market this week but news flow from our portfolio holdings was relatively quiet. From the large-cap earnings reports, the things that jumped out at me were another great report from Microsoft (MSFT), which seems to me like a stock you need to own, as well as Alphabet (GOOG) and Amazon (AMZN). Then there was the huge hit to Facebook (FB), which I don’t use, due to lower user growth. And finally, what now looks like potential for a recovery in the price of my favorite large-cap industrial stock, 3M (MMM), which seems oversold to me. Anybody with young kids should buy that stock just because of the amount of tape the little critters use!
As usual, this earnings season is showing that companies need to both deliver on expectations in the most recent quarter and dangle a hearty carrot to keep investors engaged for the rest of the year (at least). Lacking both, shares are likely to trade flat at best, or get demolished, at worst.
In the small-cap world, the S&P 600 Index is ticking along right near its all-time high, so all looks good there.
As I said last week, with both estimates and small-cap stocks going up, the forward Price-to-Earnings ratio (forward PE) for small caps is still just below 18, where it’s been for most of 2018. That’s not cheap, but not expensive either.
I’m going to cut myself off there and save my firepower for next week, when we’ll have seven positions report, and a new Issue released on Friday. Updates this week are, for the most part, short and sweet.
Changes this week:
IntriCon (IIN) Moved to Hold
Updates
AppFolio (APPF) is back near its all-time high and will report on Monday. I’ve been at Hold since the stock seems to be nearly priced for perfection. That said, things change, and shares could go higher if AppFolio shows that it can meaningfully expand its target market without investing so much that profit margins get crushed. AppFolio is expected to grow Q2 revenue and EPS by 27% and 46%, respectively. HOLD HALF.
Announced earnings date: Monday, July 30
Apptio (APTI) will report next Wednesday and has been kept at Buy since it’s attractive based on growth, valuation, momentum, etc. The market is looking for revenue growth of 23% and EPS growth of 88% (to a loss of -$0.01). A profit in the quarter will be a terrific beat. We’re still looking for a profitable year, with 2018 EPS of $0.04 (up from a loss of -$0.24 in 2017) and revenue growth of 21%. The stock was upgraded by Jefferies this week to a $43 price target (roughly 12% above where it is now). Apptio makes software that helps IT leaders analyze, optimize and plan technology investments and benchmark financial and operational performance against peers. BUY.
Announced earnings date: Wednesday, August 1
Arena Pharmaceuticals (ARNA) has been in the dumps this week after shares fell from support around 44 back to around 40 on no new news. There could be an improvement in sentiment toward Celgene (CELG), which released some favorable data on Revlimid (AUGMENT trial results, plus sales trends). But given there is nothing new on Ozanimod, which is Celgene’s potential competitor to Arena in UC, this is a very indirect line of reasoning to account for Arena’s dip. I did notice some erratic trading in certain small caps (including Chefs’ Warehouse) this week and it might just be that some institutional holders were selling shares. In any event, an unexplained dip in shares of Arena has happened before. And provided the next wave of data is positive, this dip should be bought. No earnings release date yet, though based on previous timing we should get something in the second week of August. BUY.
AxoGen (AXGN) was flat this week after rising 7% last week. We have an earnings date of next Wednesday, and the market will be looking for around 40% revenue growth. Management will then speak at the Canaccord Genuity Conference the following Wednesday. Keeping at Buy until the trend breaks. BUY.
Announced earnings date: Wednesday, August 1
Chefs’ Warehouse (CHEF) had an atypical week marked by a bigger than normal selloff on Tuesday (a day when I noticed erratic action in many small caps). That dip took the stock down to its 50-day line where it found support. It looks to be regaining its composure now. The company will report next Wednesday. Analysts are looking for 9.1% revenue growth and EPS growth of 57%, to $0.22. Management’s 2018 guidance calls for 9.2% revenue growth (to $1.42 billion) and EPS growth of 55% to 75% (to a range of $0.68 to $0.77). BUY.
Announced earnings date: Wednesday, August 1
Everbridge (EVBG) is still climbing back toward its all-time high (hit in early June). The company won’t report until a week from Monday. I moved back to Buy a few weeks ago and am sticking with that rating. BUY.
Announced earnings date: Monday, August 6
Instructure (INST) will report on Monday and I have high hopes for the stock since I think it’s undervalued and that the market will start to appreciate the growth numbers the company is putting up. In Q2, analysts expect revenue to grow by 30% to $49.5 million and for EPS to improve by 22% to a loss of -$0.25. The story behind the numbers should be market share gains with Canvas (education) and continued growth with the corporate learning product (Bridge). There is also a partnership with Paychex that could start to contribute this quarter. BUY.
Announced earnings date: Monday, July 30
IntriCon (IIN) was just moved to Hold yesterday in a Special Bulletin (in which I detailed the earnings results) after the stock blasted 20% higher following a terrific quarterly report. Revenue growth was 33.9% to $30.2 million and beat by $4.1 million, while EPS of $0.25 was up 178% from $0.09 in the year ago quarter. Management pushed up full-year guidance to a range of $115.5 million to $117 million, which implies roughly 31% growth (versus consensus at 20% revenue growth). The move to hold was precautionary given the big jump in the share price and our 70%-plus gain in less than two months. I’ll keep an eye on the stock with the intention of moving back to buy when I can better gauge the stock’s next move. HOLD.
Earnings: Done
MGP Ingredients (MGPI) has been trading sideways and there’s really been no new news to report. We’ll get an update next Thursday when Q2 earnings come out. Analysts are expecting revenue growth of 8% and EPS of 32%, to $0.49. I don’t have any reason to believe MGP will miss consensus, so keeping at Buy. BUY.
Announced earnings date: Thursday, August 2
MiX Telematix (MIXT) hasn’t been looking all that strong with a slightly deeper dip this week carrying the stock just below its support zone from late June. I attribute the lackluster performance to the sour action in emerging markets (remember, MiX is based in South Africa) since I haven’t been able to dig up anything meaningfully negative about the company. Last quarter was terrific, and while expectations might be slightly higher this quarter, it seems that the company’s business is doing well. In particular, the stronger oil price was a tailwind and that hasn’t changed lately. Earnings come out next Thursday and given the trend here we’ll be cautious going into the event. HOLD.
Announced earnings date: Thursday, August 2
Q2 Holdings (QTWO) is right back to its June all-time high and will report earnings a week from Tuesday. Analysts are expecting revenue growth of 22% and EPS of $0.01. For the full-year, revenue growth should be around 23% and EPS should be up 267% to $0.11. In general, I’m bullish on fintech stocks and have seen a number of upgrades for the group, as well as for payment processors. It seems Q2 is well positioned to keep growing, so keeping at Buy. BUY.
Announced earnings date: Tuesday, August 7
Rapid7 (RPD) will report a week from Monday. Things have been quiet. We’re expecting revenue growth of 16% and EPS growth of 40%, to -$0.19. Keeping at Buy. BUY.
Announced earnings date: Monday, August 6
