November was a really good month for my portfolio and after some investing soul searching in October, I made a concerted effort to identify trends with regards to earnings and reactions/price movements during the heart of earnings season. I ended up making a lot of changes, but as I mentioned in another thread, I still feel a little shaky on what the market is prioritizing with some of these movements. I’m still new and I don’t have a ton of time to dedicate to investing, but clearly company performance, expectations and evaluation can vary quite a bit from industry to industry and there are a ton of intangibles also at play. It’s probably too much to ask that there are a simple set of metrics/benchmarks that always equate to winners, so hopefully I’ll continue to learn the nuances as I take some bumps and bruises.
Here’s an update to my year and current allocations:
JAN: +11.38%
FEB: +19.98%
MAR: +3.37%
APR: -7.07%
MAY: +15.18%
JUN: +7.13%
JUL: +0.19%
AUG: -3.43%
SEP: -2.32%
OCT: -3.8%
NOV: +13.07%
YTD: +79.22%
Company Results/Decisions
I made a lot of transactions this month so I won’t go over every decision but focus on my thoughts, conviction and why it ended higher or lower. I now have 13 positions which is slightly more than usual.
What I Sold Out Of
SOWG: They reported earnings and had a massive hit to sales because a bunch of their product melted due to the summer heat. Seems like an obvious risk they should have seen, I sold out.
ASPN: We discussed this company extensively during the last month so I won’t go too deep. For me, with the flat quarter, the guide just wasn’t there for me to stay in. Guided a little bit better than flat QoQ.
Current Positions:
NVDA: +3.8% MoM
I made the decision to trim a big chunk of NVDA after earnings, not because I thought it wasn’t a great report or that they won’t continue to execute, but because the market’s reaction seems to be hinting that the short term upside is completely baked in. I actually thought it was a hugely impressive report, with a Net Income growing at 100% YoY and another really solid 7% raise on revenue next quarter. But even with their growth rates, the market has apparently decided this is not impressive enough and it has dropped since earnings. I will still hold them at a high allocation because I think eventually the market will come to understand they are more than chips and this kind of growth (even if it comes down quite a bit) has probably never been done before at this amount of profit…but I could no longer justify them being 25% of my portfolio if the expectations from the market are (IMO) unreasonable.
ALAB: +46% MoM
One of the many great companies brought to the board by wpr101, I increased my allocation both before and after earnings with their clear growth trajectory and tailwinds. The report was outstanding, boasting 200% YoY revenue growth and 46% QoQ with a strong guide. They also nearly doubled net income (non-GAAP) and nearly tripled operating cash flow. The earnings call was also very encouraging despite having no technical knowledge of their business. My main takeaway was that all their product lines are ramping at once and are essentially stacked growth curves. This is my top confidence position and will consider adding if I can.
UPST: +61% MoM
Upstart was my biggest winner in November and it became my 3rd biggest position just due to growth. Their report suggests they are back in growth mode and management reiterated this on the call, so there is a lot to be excited about although the numbers aren’t yet where some of my other holdings are. It is still in “comeback” territory, but I’m glad my patience has paid off…for the time being. I’m still wary and VERY wary considering the proposed tariffs and thought of the inflation crisis reigniting. Here were some of the numbers:
- $162M Revenue up 20% YoY, 26% QoQ, and an 8% beat (all more or less highs since 2022)
- 11% raise for Q4
- loans up 64% YoY
- Conversion rate up 72% YoY
- Have announced a handful of new lending partners over the last few weeks
PGY: -6.3% MoM
I really thought this would be Pagaya’s breakout moment and instead it became a big learning month for me with regards to their business and how investors are viewing this company. They gained about 50% in the week prior to earnings in anticipation, I assume because their valuation is incredibly low and a positive quarter would produce a huge increase in price. I fortunately purchased and sold some options before earnings, because earnings sent them falling 50% over the course of a week, and they then recovered around 25%. I bought on the way down and towards the bottom for reasons I’ll explain.
So, what happened? Based on how other companies on this board were getting HUGE gains on Adjusted Net Income growth, even with top-line growth slowing. So I was really hoping that PGY would post big gains in that category, even more than revenue. They did…33M in the quarter, over double their previous high and up 371% QoQ. Revenue growth slipped to 21% QoQ and Network Volume was up 14%.
It turns out that for this company, the market REALLY cares about GAAP numbers. Specifically, the balance sheet which has a line-item for loan impairments, a non-cash flow line item that has been growing over the last few quarters due to some of the ABS deals from 2023 in a very tough credit market. I’m still learnings about what these even are, but I listened to the call and they were the focus from at least half the analysts, with zero congratulations on record adjusted net income. The other questions were focused mostly on network volume and why that hasn’t seen a sharper increase.
So, why do I stay committed to Pagaya? First, it’s P/E is currently at 6.9 which is crazy low, with EV/Sales at 1.2. But if the market only seems to care about GAAP balance sheet, this is a bit meaningless…so secondly, they stated the remaining loan impairment charges will hit the balance sheet in the current quarter. So if I’m taking them at their word, they should immediately become GAAP profitable in Q1 2025, which should be confirmed during their Q4 call, and was mentioned on the Q3 call. And lastly, they made a couple positive comments about their growth rate in network volume and revenue. Namely, that all of the big partnerships they’ve announced (US Bank, Klarna, etc) did not contribute to this quarter’s growth at all. US Bank is live in the current quarter and will ramp from there. They also mentioned that the interest rates from the fed have really not made their way to consumers yet, so they haven’t really seen any movement from lowering the fed rate…yet. But similar to Upstart, the Trump tariffs have made this whole situation more cloudy, so it’s a positive to me that PGY is not as affected by rates.
I’m likely into Pagaya to see this story play out at least until Q2 2025 just simply on the GAAP profitability projection. From there, I will want to see the new partnerships result in bigger growth rates, as this is an outlier in my portfolio at 20% growth.
NTRA: +38% MoM
Natera had an outstanding report, continuing to accelerate on all key metrics and likely could have had an even bigger price increase if the guide had been better. Revenue came in at $440M, up 64% YoY, their 5th straight quarter of revenue acceleration, albeit at a lower QoQ growth of 6%. Gross margin improved for the 5th straight quarter to 62%. Tests processed up 24% YoY, the highest mark for that metric, and oncology tests (which I assume are more expensive/higher margin than the prenatal testing) were up 54% YoY and 9% QoQ. They also had a huge jump in positive FCF (from $3 to $34.5MM). I added to my position after earnings. The only watchout is that the raised annual guidance extrapolates to a reduction in revenue in the current quarter. I’m hoping that’s heavily sandbagged but we shall see.
They also had a number of developments in terms of papers published, clinical trials completed and they announced medicare coverage for Prospera’s use in lung transplant recipients. I’m not sure if any of this really has a tangible output in terms of their business yet as I’m very new to this space. They did also lose a case on false advertising brought by a competitor. None of this has made an impact to my decisions.
NU: -16% MoM
As I mentioned in another thread, Nu’s earnings & reaction had me very perplexed and I have a lot less clarity than I do for PGY. My initial reaction to earnings was ecstatic, as Net Income increased 18% QoQ and 82% YoY. It’s the kind of increase that sent some of our other stocks through the roof. They also generated $1B in operating cash flow, saw deposits grow 60% as well as ARPAC grow 25% YoY. Topline revenue growth did slip to 56% on an FX neutral basis or 38% considering exchange rates. However many of the companies on this board have been able to brush aside slowing growth if they are more profitable. NU is now down 25% following the earnings call and just got a downgrade due to valuations which makes very little sense. They are currently at 21 PE with still very impressive growth rates at really big numbers. That PE is 1/5th of Axon, for instance, who is growing at slower rates and at much lower numbers.
So, what gives? One explanation I found is that Brazil’s inflation has been running rampant and their central bank raised rates just one week before earnings. But that certainly didn’t slow down US banks from producing record earnings. Or perhaps I’m missing an important evaluation metric for their business. Either way, I see no reason to sell after that report, but it’s the type of strange reaction that makes me nervous and that I’m not sure if I understand how to evaluate this company.
PAY: +3.5% Since 11/21 Purchase
Paymentus was also brought to the board by wpr101 and after loading them into my Koyfin evaluation sheet, I could see they fit really well alongside my other companies, so I took a sizable allocation right out of the gate, albeit well after their earnings spike. I don’t have a lot more to add to WPR’s review of their earnings as I learn more about this company.
IMMR: +7.5%
No updates, earnings have not been posted yet and I saw no news.
HIMS: +36% since 11/6 purchase
I had been in HIMS in the past and they have always seemed like an interesting business to me from the outside, so I was glad to see their revenue and net income really accelerate in their last report. I gave my thoughts on the Amazon threat on the other thread, but ultimately this is just such a massive market that I think there is room for them to grow for some time. Plus, I personally don’t believe Amazon (and other big tech) is great at everything and will swallow everything. So while Amazon might make a lot of money off of those shopping convenience in this space, I don’t think Amazon will ever be seen as a “premium” offering, because it is not their DNA or how their company operates.
One interesting update from them is, to complement their weight loss offering, they have launched a monthly nutrition service in the form of juices and bars. I think this helps to highlight their effort to be seen as a true health and wellness partner vs. just a convenient and cheap way to get medication.
RDDT: +19%
I didn’t see a ton on RDDT this month except for a couple of outages. I kept my position as-is.
TMDX: +6%
I held my greatly reduced-position this entire month with intention of waiting until the next report to see about next year’s guidance and commentary. Then this morning (12/2) I was looking for funds and decided they should come from TMDX, and sold the rest of my position. This was really fortunate…they announced a new CFO and revised their annual guidance a bit lower at market close today, and dropped 11%. Since this happened in December it’s not reflected in my allocations. More turmoil here is not a good sign.
APP: +4.7% since 11/21 purchase
I have been completely out of advertising stocks for a couple of years as I felt my judgement was clouded and felt it was better to just stay out altogether. This was a big mistake with AppLovin, obviously. Two things changed my mind…one was the board coverage and revelation (for me) that they are side-stepping agencies. This made me completely rethink my vantage point. Secondly, I realized while commenting on a couple of these threads that they really do have a huge opportunity in eCommerce especially going directly to clients. I was dubious when the focus was on CTV, but as I’ve mentioned in other threads, eComm budgets often sit separately from brand-building budgets. There is a huge market to steal here from Meta, Google, and other players, well before they encounter agency buyers which would be harder to sell. Anyways…not willing to sit on the sidelines any longer even if it is pricey.
SMCI: +12.6%
After their “earnings report” revealed almost nothing about the ongoing controversies, plus a guide for slowing revenue, I sold completely out of the position I’d been holding until that update. I kept one share just to keep one eye open. After they announced a new auditor and I saw some of the sentiment in news start to shift, I slowly began to buy back a bit of a position and it has done well even if I’m late to the party. That’s the only way I feel comfortable with them any longer. As of today (12/2) they have been cleared of any fraud by their “independent special committee”, and I bought a little more.
I could get burned, but one thing that is clear from the slew of earnings reports in November, is that liquid cooling data centers are going to be in very high demand and they should stand to benefit and recover from this if there isn’t major fraud going on.
WRAPPING UP
I now have a two year old and two month old and I have less and less time for these, let alone listening to earnings calls as I intended to. Hopefully I’ll be able to crank out an end of year update but no guarantees. It’s been a great year for performance and for learning, and my hope for 2025 is that the focus will be on company results and the massive macro events will stay behind us. However that may be very wishful thinking. I guess it is the season of wishes, after all. Happy Holidays and best of luck in December to all.