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Small-Cap Confidential
Undiscovered stocks that can make you rich

Cabot Small-Cap Confidential 218

This month’s selection is a small company in the health care space given the strength in this group of stocks. The company has a very specific focus on products to treat peripheral nerve injuries, and it’s growing revenue north of 50% annually.

Cabot Small Cap Confidential 218

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THE BIG IDEA

In 2010, U.S. Marine Corporal Jeffrey Cole was on routine patrol with his unit in Afghanistan, checking to see if there had been any Taliban activity in the area.

It didn’t turn out to be a routine day. His patrol began taking gunfire from enemy forces.

Jeffrey was hit six times. His body armor absorbed four of the bullets. But the other two struck his left arm, badly damaging his brachial artery and ulnar nerve. He survived, and returned to the U.S. to recover. After meeting with surgeons, he learned the gap in his ulnar nerve was almost three inches long.

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Nerves provide the pathway for motor and sensory signals throughout the body. Suffice to say, with such a large gap in his ulnar nerve, Jeffery’s left arm and brain were no longer communicating. In short, his arm no longer worked.

The doctors said he had a few options.

Option number one was that he could amputate his arm. As you can imagine, he wasn’t too excited about going down this path if he could avoid it.

Alternatively, the surgeon could try to repair the nerve. Given the size of the gap, it wasn’t practical to pull the existing nerve ends together and suture them up. He needed a nerve transplant to bridge the gap. And there were a few ways of doing this.

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The first nerve transplant option was a nerve autograft procedure. This surgery involved removing nerve from another part of his body, and using it to bridge the gap in the ulnar nerve. The material would come from the sural nerve, located in the back of the lower leg. The downside was that this would create a nerve deficit in Jeffrey’s lower leg, which could lead to loss of some sensation in his foot. The procedure also meant another surgery, greater expense, and waiting three to six months to complete the nerve transplant. Plus, with such a large gap, he would need nerve material from both legs. This route sounded better than amputation, but the prospect of undergoing three surgeries and then having compromised nerves in both legs plus his left arm didn’t sound very appealing.

A second nerve transplant option was to bridge the gap in his ulnar nerve with other materials on the market. The doctors discussed hollow-tube synthetics and hollow-tube nerve cuffs, which are made of either bovine (cow) collagen or polyglycolic acid. These products would likely restore some arm function, but would also limit nerve healing since their architecture and flexibility don’t match that of a human nerve. There was also risk that these products wouldn’t be compatible with Jeffrey’s body, especially given the size of the gap.

The route Jeffrey ultimately went with sounded like the best option. It was a nerve transplant, but the material didn’t come from his body. It was a cadaver allograft, which is nerve tissue from a deceased person. The allograft bridged the 2.75-inch (7cm) gap without damaging nerve function in his legs, and since it was processed from donated human nerve tissue, it had an architecture that allowed his nerve cells to regenerate through it, thereby restoring function of his arm over time. Jeffrey’s arm would never be like new. But after a couple of years, he had recovered partial use, wasn’t at risk of having to amputate, and was working as a national parks ranger.

As you likely suspect, the company that provided the nerve allograft to Jeffrey is a small cap. I chose to feature it as this month’s Cabot Small-Cap Confidential candidate because it has proprietary technology, rapid revenue growth (over 50%), a small but growing share of a highly specialized and expanding market, and a growth strategy that suggests it can grow into a mid-cap stock over the coming years.


THE COMPANY/PRODUCT


AxoGen (AXGN) is a $535 million market cap company specializing in surgical solutions for peripheral nerve injuries. Every day, people incur nerve damage from car accidents, gunshot wounds, power tool accidents and surgical mistakes. AxoGen’s products help these patients heal. The company’s portfolio includes four surgical products to bridge gaps in severed nerves (transections), repair crushed and damaged nerves (compressions) and wrap and protect repaired nerves (inflammation). Its primary customers are plastic surgeons, hand surgeons and oral maxillofacial surgeons.

The company’s implants are considered regenerative medical products because their complex structure supports nerve cell regeneration in the patient’s body. They are pliable, can be sutured, and are translucent, which helps surgeons see through them to the underlying nerve. They are all off-the-shelf solutions, meaning they can be purchased, stored and made available for use at a moment’s notice. AxoGen also sells two sets of evaluation and measurement tools for assessing nerve function.

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Most of AxoGen’s sales come from the U.S., but the company does generate a small amount of revenue from certain products sold in Canada and the United Kingdom. AxoGen was founded in 2002, and is based in Florida.

AxoGen is a small company, but it’s growing very rapidly. In 2016, revenue grew by 51% to $41 million. I expect average annual revenue growth of around 40% over the next two years. One of the attractive qualities of the company is that it has cutting-edge solutions for a highly specialized, niche market of considerable size, relative to its market cap. Management believes the U.S. market opportunity for its current portfolio is $1.8 billion. That estimate is based on around 900,000 procedures annually in its target markets of Extremity, Carpal/Cubital Tunnel, and Oral and Maxillofacial (OMF) surgery.

A Crash Course on Peripheral Nerve Repair

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The body’s nervous system is composed of the Central Nervous System, which includes the brain and spinal cord (depicted in orange in the above image), and the Peripheral Nervous System (depicted in blue lines), which includes the rest of the body’s nerves. AxoGen’s products are for peripheral nerve repair.

Peripheral nerves function like networking cables to transfer sensory and motor signals between every organ in the body and the brain. In fact, their construction is similar to that of a networking cable.

A typical nerve has hundreds of axons (cell cytoplasm resembling a hair-like fiber) lying inside long, thin endoneurial tubes. These tubes are bundled together in groups called fascicles. When a nerve cable is cut or crushed, the sheath structure protecting the axons gets damaged, and the axons are no longer able to carry signals. Nerve damage is similar to a break in the networking cable that goes from a router to a computer—cutting it knocks out internet service. Unfortunately, there is no wireless service to replace nerve function just yet!

When sensory and motor signals are interrupted, bad things happen. Sensory nerve damage can lead to feelings of numbness, or no sensation at all. Imagine grabbing a scalding hot iron and not feeling it. Motor nerve damage can mean that muscles, limbs and joints don’t work properly (or at all), as in the case of Jeffrey Cole’s arm.

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The bottom line is that nerve damage is likely to lead to some sort of pain, loss of sensation, reduction of movement and a lower quality of life. Even minor nerve damage can lead to neuroma, a complication that arises when a nerve doesn’t heal properly, and altered signals are sent between organ and brain. In most cases, nerve injuries—whether they were cut (transection injury), crushed (compression injury) or infected/irritated (inflammation)—require surgical repair.

AxoGen is Redefining Peripheral Nerve Repair with Regenerative Products

Until recently, the best way to complete nerve repairs was to suture the nerve ends together, provided this could be done without tension (you don’t want to pull the nerve ends tight). If there would be tension, a nerve autograft would be performed by surgically removing a less important nerve from somewhere else in the body, and using it to bridge the gap. We already talked about the downside to this approach.

At the end of the day, the best repair outcomes involve a tension-free repair, support structure to allow for cell regeneration, isolation from surrounding tissue, and materials that the body readily accepts. Straight up sutures, autografts and hollow tube implants might check a few of the boxes, but AxoGen’s regenerative solutions check them all. The company’s products are used to fill gaps, protect nerves and ward off inflammation. These simple illustrations show how each of AxoGen’s four products is used to repair a different type of damaged nerve (which looks like a straw in the illustration below).

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Avive Soft Tissue Membrane
Avive is AxoGen’s newest product, and was just fully launched in Q1 2017. It is used to separate tissues and reduce inflammation around repaired nerves following surgery. The soft and flexible membrane is made from minimally processed human umbilical cord (including amniotic membrane), which has been used by surgeons for decades for various repair applications inside the body. The permeable membrane reduces common instances of scarring and fibrosis that irritate and compress recovering nerves, thereby reducing the risk of post-operative complications and/or extended recovery times. It has a two-year shelf-life at room temperature.

Avance Nerve Graft

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The Avance Nerve Graft is an off-the-shelf product made from cadaver peripheral nerves. It is used to repair severed peripheral nerves with gaps of 15mm to 70mm (0.6 inch to 2.75 inches) and diameters from 1mm to 5mm (up to 0.2 inch). It can also be used to patch partially severed nerves. At a glance, the graft looks almost like a piece of bucatini pasta filled with angel hair. But it’s actually bundles of small diameter endoneurial tubes held together by an outer sheath, called the epineurium.

The product is flexible and pliable, and can be sutured in place to the severed nerve stumps. As the patient recovers, their regenerating axons grow through the supporting graft. AxoGen’s ongoing RANGER study (the largest multi-center clinical study in peripheral nerve gap repair) has over 1,100 Avance nerve repairs enrolled, showing overall meaningful recovery rates of well over 80%. That’s significantly better than manufactured conduit, and comparable to autograft.

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Surgeons can select the most appropriate length and diameter Avance Nerve Graft from the freezer, give it about 10 minutes to thaw, then suture in place. Management said Medicare reimbursement ranges from $11,460 to $22,660, and each procedure can save $3,200 to $9,500, and 30 to 90 minutes of operating room time (compared to an autograft) since there is no nerve harvest procedure.

AxoGuard Nerve Connector

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The AxoGuard Nerve Connector is used in scenarios where a nerve has been severed and the gap is less than 5mm. It is a strong, flexible hollow tube that’s open on each end (like a straw), and is made from minimally processed porcine (pig) extracellular matrix (ECM).

The product is used as an alternative to direct suture repair, which is basically just stitching the nerve ends together. To complete the procedure, the surgeon places the severed nerves inside the tube and sutures them in place. The AxoGuard Nerve Connector then isolates and protects the injured nerve as the patient’s cells regenerate into the product’s extracellular matrix across the gap.

Compared to a direct suture repair, AxoGuard offers tension relief at the ends of the severed nerves, the ability to locate sutures away from the ends (where the nerve structure is stronger), permanent structural reinforcement along a signifcant length of the nerve and up to 40% reduction in surgery time due to fewer sutures. AxoGuard has an 18 month shelf life at room temperature, and is available in lengths of 10mm (0.4 inch) and 15mm (0.6 inch), and diamaters ranging from 1.5mm to 7mm (0.06 inch to 0.28 inch).

AxoGuard Nerve Protector

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This is AxoGen’s “do it all” solution. It is made of the same minimally processed porcine ECM as the AxoGuard Nerve Connector, but instead of being a solid tube, it is made in a slit tube form so it can be wrapped around nerve structures that aren’t severed. Because of this flexible design, AxoGuard can be used to repair severed nerves with or without gaps, partially severed nerves, crushed nerves or other damaged nerve variations.

Similar to AxoGuard Nerve Connector, AxoGuard Nerve Protector’s primary purpose is to protect and isolate the nerve from surrounding tissue during the post-operative healing process. It also allows the nerve to “glide” through the protective structure. The product has an 18 month shelf life at room temperature, is strong, flexible, easy to suture and available in diameters from 2mm to 10mm (0.08 inch to 0.4 inch) and in lengths of 20mm to 40mm (0.8 inch to 1.6 inches).

AcroVal Neurosensory & Motor Testing System

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AxoGen is working to standardize evaluation and measurement of nerve function, which remains a highly subjective practice. That’s not ideal given the wide variety of possible patient outcomes following surgery. AcroVal aims to help standardize the process. The product offers examiners a digital solution for measuring, evaluating and comparing conditions, including peripheral neuropathy, nerve compression syndromes and transected nerves.

The technology was developed by Dr. A. Lee Dellon over two decades ago, was acquired by AxoGen in 2015, and was commercially launched in March 2016. It includes three non-invasive devices that collectively evaluate hand strength and neurosensory function: (1) AcroGrip for hand grip strength measurement, (2) AcroPinch for pinch strength measurement and (3) Pressure-Specified Sensory Device (PSSD) for somatosensory evaluation and measurement. The key benefit of the product is that it gives objective measurements, which can help direct patient activities.

AxoTouch Two Point Discriminator

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AxoTouch is a tool used to measure the innervation density of any surface area of the skin after a nerve injury and/or following nerve repair surgery. It is a set of two aluminum discs with a series of prongs spaced between 2mm and 15mm apart, as well as 20mm and 25mm spacing. There is a depression in the middle of each disc which permits easy rotation to the desired measurement interval. They are portable, easy to use and easy to read. To measure innervation density, a patient averts his or her eyes while a doctor methodically presses the AxoTouch’s prongs against the skin in the area to be tested. By reducing the spacing the doctor can zero in on the area(s) where nerves have been damaged or severed.

The Path Forward: AxoGen’s Growth Strategy

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AxoGen’s growth strategy has three dimensions: (1) expand its product lineup and move into new markets, (2) build market awareness through surgeon education and (3) grow its body of evidence through clinical trials.

Product & Market Development: AxoGen estimates it has a current U.S. market opportunity of roughly $1.8 billion, assuming 900,000 Extremity, Carpal/Cubital Tunnel and OMF procedures annually. Extremity is the biggest market by far, equally roughly $1.5 billion of the pie. Potential new markets include breast reconstruction, lower extremity surgery, head and neck surgery, urology and surgical intervention for pain. Management has highlighted breast reconstruction (estimated $140 million market) and Total Joint Replacement (estimated $125 million market) including nerve damage from knee and hip replacement as two areas where its current product portfolio can address clinical challenges. On recent conference calls, management has discussed its plans to expand into breast reconstruction, and I believe we’ll see a marketing initiative in late 2017.

Surgeon Education and Market Penetration: Surgeons are typically slow to adopt new technologies. They usually begin with a few cases, then watch how the patients recover. To engage surgeons, AxoGen has a direct sales force of 50 people and a network of 20 independent distributors. It is hiring, and expects to exit 2017 with 60 direct sales people (a 20% increase is a good sign). It also runs a national surgeon education program (15 courses expected in 2017), runs an online surgeon forum called Nerve Matters (over 1,000 surgeons), and participates in various conferences and sponsors surgeon panels.

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The company currently has 465 active accounts (defined as an account that orders products at least six times over 12 months), up 37% from 340 a year ago. Its research shows there are around 5,100 potential accounts in the U.S., implying it has penetrated just over 9% of the market. On the Q1 conference call, management said it’s still focused on the early adopter surgeons (see bell curve chart above) and believes it is marching toward engaging early majority surgeons, who represent the biggest chunk of the potential market. It doesn’t have hard data to support this assertion but said that at conferences, more middle adopter-types are coming over to talk about AxoGen’s solutions and go over the clinical data.

Clinical Trials and Body of Evidence: AxoGen’s RANGER study is an ongoing study designed to enroll up to 2,500 subjects (it’s up to roughly 1,100 now), with follow-ups 36 months post nerve repair. In 2013, the MATCH comparative arm was added to allow comparison of 300 subjects who received Avance Nerve Graft with a similar number who received nerve autograft, or tube conduit, of similar lengths.

The company’s Phase 3 RECON study is currently enrolling subjects at up to 15 centers and compares Avance Nerve Graft with Collagen Nerve Cuffs in 150 subjects with digital (hand) nerve injuries. This is a long-term study to support transitioning the Avance Nerve Graft to a biologic implant. Subject evaluation will take place over 12 months, and since it’s still in early enrollment, there’s no data yet.

The CHANGE pilot study, which compared patients with hand nerve injuries repaired with the Avance Nerve Graft with those repaired with hollow conduits, is complete. The study showed that patients who received Avance had better outcomes than those with hollow conduits.

The Business Model

AxoGen sells off-the-shelf regenerative medical products for surgical repair of peripheral nerves. Its products are regulated by the FDA. Revenue growth is dependent on securing new accounts (new surgeons and practices) and increasing sales volume into existing accounts. Since accounts ordering multiple products are typically five times larger than single-product accounts, AxoGen is very focused on marketing new products to current accounts. The company implements a price increase in the mid-single-digits on March 1 every year.

AxoGen holds eight U.S. patents and 15 international patents. A valuable part of the company’s IP is its method for processing and manufacturing products. It developed a proprietary method, called the Avance process, for processing recovered human peripheral nerve tissue in such a way that the essential structure of the extracellular matrix (ECM) is preserved, but the cellular and noncellular debris (cells, fat, blood, axonal debris, etc.) is removed.

Donated tissues come from cadaver peripheral nerves (for Avance Nerve Graft) and umbilical cords (for Avive Soft Tissue Membrane). The process includes donor medical review, tissue recovery and testing, processing, packaging, and sterilization to meet FDA, state, international and American Association of Tissue Banks (AATB) standards/regulations.

The company’s employees process and package Avance Nerve Graft and Avive Soft Tissue Membrane in a clean room facility at the Community Blood Center in Dayton, Ohio. AxoGuard Nerve Connector and AxoGuard Nerve Protector are made using porcine (pig) intestine by Cook Biotech in West Lafayette, Indiana, under an agreement running through 2022. AcroVal and AxoTouch are made by Viron Tech/Cybernetics Research in Arizona.

The Bottom Line

Since crossing the $15 million revenue mark in 2014, AxoGen has been growing revenue at an average annual rate of 56%. Revenue was up by 51% (to $41.1 million) in 2016, and grew by 51% (to $12.2 million) in the first quarter of 2017. I expect revenue growth of 40%-45% in 2017, and around 40% in 2018.

The company is not yet profitable. It lost $0.39 in 2016, and $0.11 in Q1 2017. That said, losses are decreasing as the revenue base grows and profit margins are going up. AxoGen had a gross profit margin of 84.4% in Q1 (up from 82.7%). Assuming revenue grows as I expect, it should turn a small profit of a couple of pennies per share in 2018, after losing around $0.30 this year.

It has $25.9 million in cash and $25 million in debt ($21 million at 8.5% with interest-only due through 12/1/2018, and $4 million on a $10 million revolver at 5.0%). The company just completed an $18.6 million equity raise late last year so there is very little risk of another equity raise for at least a year.

AxoGen currently has 465 active accounts (of a potential 5,100 in the U.S.), an increase of 37% over a year ago.


RISK


Dependence on relatively few products: AxoGen is a small company with just four core products, one of which was just released late in 2016. While the market opportunity is big compared to its current size, any issue with one of its products (a manufacturing defect, for example) could have a significant negative impact on revenue.

Manufacturing supply: Supplies for AxoGen’s products come from multiple sources, but they aren’t exactly easy to get if there is supply disruption.

Marketing expense: To get its products in front of surgeons, AxoGen needs to grow its sales force, and that requires capital. Thus far, it appears to be doing just fine, but finding, training and retaining talented sales people in a competitive industry is always challenging.

Potential for dilutive stock offerings: AxoGen just completed a secondary stock offering in late 2016, so there is little immediate risk of another one. But it will need to start making principal payments on its debt after 12/1/2018 (assuming it doesn’t refinance it). If the company does reach profitability in 2018, as expected, it might just sneak by without another offering. But investors shouldn’t be surprised it if does complete one to make sure it has adequate capital to fund growth. It’s worth mentioning that the last offering didn’t hurt the share price.

Dependence on reimbursement: AxoGen relies on reimbursement from insurers, Medicare and Medicaid. These rates are negotiated each year. While it’s been successful implementing price increases each year (including this past March), there’s no guarantee this will go on indefinitely.


COMPETITION


AxoGen competes with companies that design, manufacture and sell solutions for transected and non-transected nerve repair, including direct suture repair, autograft and hollow-tube nerve conduits and materials used to wrap and protect nerve tissue. It also competes with companies offering amnion products for wound care, which are similar to Avive. Its main competition for off-the-shelf repair options in hollow-tube conduits and bio-absorbable wraps include Integra LifeSciences (IART), which sells NeuraGen (hollow tube made of reconstituted bovine collagen) and NeuraWrap (nerve wrapping made of reconstituted bovine collagen biomaterial); Baxter International (BAX), which sells Neurotube (hollow tube made of polyglycolic acid); and Stryker (SYK), which offers NeuroMatrix and Neuroflex (hollow tubes derived from reconstituted bovine collagen), and NeuroMend (nerve wrapping made of reconstituted bovine collagen biomaterial). It also competes with companies that evaluate and measure nerve function, a market in which there are a wide variety of methods and techniques, with little consistency in procedures.


THE STOCK


Trading Volume: AxoGen has a market cap of $535 million and trades around 220,000 shares daily. That translates to roughly $3.5 million worth of stock each day. Our subscriber group shouldn’t move this stock. Heavy days are +400,000 shares, and that’s happened eight days over the last six months.

Historical Price: AXGN has performed about as you’d expect relative to its revenue growth. Shares traded between 2 and 5 from 2013–2015 when annual revenue grew rapidly (40% to 60%) but never exceeded $17 million. Then the market recognized the potential trajectory at the end of 2015, a year in which revenue grew by 63% to $27 million, and the stock began gaining momentum. Shares began 2016 at 5, then rallied to around 9 after Q2 results were released in early August. They remained range-bound between 7.5 and 9.25, then jumped above 10 in January 2017. The stock plateaued in the 9.5-11.25 range through mid-April, at which point it broke out and rallied as high as 16 by late May. The stock was consolidating in the 14 to 16 range before Cantor Fitzgerald beat me to the punch and initiated coverage with a Buy rating last week. That helped drive shares up near 17 on heavy volume last Friday. The stock is now digesting that move and trading in the 16-17 range.

Valuation and Projected Price Target: Management has said it expects to grow revenue by at least 40% in 2017. If we assume average annual growth over the next two years is 40% (reasonable, in my opinion), AxoGen will generate around $82 million in revenue in 2018. If we further assume that at that point, (roughly 18 months from now), it trades with a price-to-trailing 12-month sales ratio (P/S ratio) of 10 (slightly lower than it does today), then AxoGen should have a market cap of around $820 million. That translates into roughly 50% upside from here, implying a target share price near 24.5.

Buy Range (until next earnings report): AxoGen has shown an affinity for rallying for a few months, then consolidating for a few, before making another run. The recent spike following Cantor Fitzgerald’s initiation threw a small wrench in my plans. I thought we’d see shares consolidate in the 14-16 range until we got closer to the next quarterly report, due in early August. Now, there’s a chance 16 could become a zone of support, but we won’t know for several weeks. As a result, I’m setting a wide buy range of 14-17 for the next month. I suggest placing larger initial orders in the 15-16 area since that could drive the price down in the near-term. A few smaller orders placed in 14-15 zone also makes sense.

The Next Event: Management should announce quarterly results and host a conference call in early August.

AxoGen (AXGN) Financials

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AxoGen (AXGN 16.05)
13631 Progress Boulevard
Alachua, FL 32615
www.axogeninc.com

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UPDATES ON CURRENT RECOMMENDATIONS


Due to the nature of the stocks recommended, it is to your advantage not to share these recommendations.

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Strong Buy means the stock should be bought immediately and is expected to move sharply higher in the very near future.
Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain, and hold on to the rest until another ratings change is issued.

With the markets closing early on Monday and closed on Tuesday, we haven’t had many trading sessions since last week’s update. In general, the story remains the same. There appears to be some rotation going on and technology stocks are still bouncing around. They’re not completely falling apart, but most definitely are not on the trajectory they were on a month ago.

Overall, the market’s next direction remains unclear. Valuations are generally high, and there’s a lull until earnings season begins (the second quarter just ended). Over the past week, most small-cap sectors have traded down between 0% and 1%.

Given the short trading week and lack of news, this week’s updates are short and sweet. We already took partial gains in several of our software stocks, and this choppy action is about what I expected. More broadly speaking, it’s not atypical to see erratic sessions in small caps in July and August. We’ll take it in stride, and follow the strategy of making incremental changes that has worked for us so far.

Updates

Airgain (AIRG)
Shares have moved back near 14 following reports of more trouble at Chinese firm LeEco (and subsidiaries) after a Shanghai court froze $180 million in assets belonging to the conglomerate’s CEO, his wife and company subsidiaries. Recall that the company’s TV unit is a customer of Airgain’s, though Airgain’s management has been clear to say it has “de-emphasized” the customer in recent quarters. Still, ongoing issues for LeEco (that will clearly get worse before they get better) represents a potential modest headwind for Airgain. On the other hand, I think the Antenna Plus acquisition more than makes up for any potential lost revenue. But management hasn’t given us the real scoop on Antenna Plus, meaning analysts are in wait-and-see mode. We know that the acquired company has much higher priced products (some near $100), but that sales can be lumpier than the lower-price, higher-volume model that Airgain has mostly had to date. Suffice to say, the next earnings call will be interesting. Keeping at Buy. BUY.

AppFolio (APPF)
As suspected, shares have found some support at 31. No fundamental updates. Keeping at Buy. BUY.

Asure Software (ASUR)
The stock held above the 14 support zone. I continue to expect very little news until earnings are reported early next month. Keep holding. HOLD.

BioTelemetry (BEAT)
Just this morning, BioTelemetry announced the definitive results of the tender offer, which closed on June 28. Around 97% of LifeWatch’s total shares outstanding were tendered, which is a huge number. The deal will close on July 12. And we should get some insight into management’s plans for the combined company on the next quarterly conference call. This successful tender was expected, but it’s still good news that it’s almost a completely done deal. The stock still looks like it’s ready to test its 52-week high of 34 within the next month. We’re still in accumulation mode here and looking forward to the end of next month when earnings should be out. BUY.

Everbridge (EVBG)
The stock continues to be weak but it should find support around here. There was a bigger spike down than I expected yesterday. We already reduced our position by a half recently, so continue to hold the other half. HOLD HALF.

LogMeIn (LOGM)
The stock is still in a choppy downtrend and looks ready to probe its 200-day line near 101. The catalyst that will determine where it goes next is the next earnings report, which is on tap in about a month. Keep holding half. HOLD HALF.

MindBody (MB)
Monday’s session was pretty awful, and it didn’t get any better after the Fourth of July holiday, so it’s fair to say I’m glad we reduced our position a couple of weeks ago ahead of the drop. That said, the stock isn’t anywhere near its 200-day line, so this pullback isn’t that significant yet. It’s important that the stock find support around 25. HOLD HALF.

Ooma (OOMA) No new news. SOLD.

Primo Water (PRMW)
Primo’s price action is frustrating because it was doing so well, and now it’s not. Shares are back to their 200-day line and we need earnings to get here ASAP. Still, keeping at Buy because I think the stock will ultimately get its mojo back. BUY.

Q2 Holdings (QTWO)
Shares are in a modest downtrend but are still trading in a tight range. Let’s go ahead and lock in a roughly 55% profit on half our position right now. Shares should find support at 35, but better to take a little risk off the table before we get there. Sell half, and hold your remaining shares. SELL HALF, HOLD THE REST.

U.S. Concrete (USCR)
After breaking out a couple of weeks ago, our concrete stock has paused just below 80 to digest the move. I’ve kept at Hold because I think the near-term upside is somewhat limited, and I see no reason to change my stance right now. HOLD.

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

Next Cabot Small-Cap Confidential issue is scheduled for August 4, 2017
Cabot Small-Cap Confidential is published by the Cabot Wealth Network, an independent publisher of investment advice. Neither the corporation nor its employees are compensated in any way by the companies whose stocks we recommend. Sources of information are believed to be reliable, but they are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Copyright © 2016 - COPYING AND/OR ELECTRONIC TRANSMISSION OF THIS NEWSLETTER IS A VIOLATION OF THE U.S. COPYRIGHT LAW. For the protection of our subscribers, if copyright laws are violated by any subscriber, the subscription will be terminated.

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