Ryshab's June 2024 Portfolio Review

[ryshab]

Performance recap

• 2021: -35%
• 2022: -76%
• 2023: +80%
• 2024 through June: +50%

Current portfolio holdings

• HIMS (24%)
• ELF (11%)
• MNDY (11%)
• TMDX (10%)
• MIRM (6%)
• ADMA (6%)
• ECOR (6%)
• ZS (5%)
• CSTL (5%)
• DUOL (4%)
• BSEM (4%)
• NU (4%)
• LFMD (4%)
• AFRM (3%)
• ROOT (3%)
• APP (3%)
• FENC (3%)
• CELH (2%)

Changes this month

• Initiated new positions in BSEM, NU, AFRM, ROOT, APP
• Got rid of IOT

My portfolio is currently 114% long. I would like to get to 90% long and 10% cash. I have some trading restrictions due to which I have to wait 60 days after purchase before trimming. Hence, the allocations are out of whack.

My portfolio also looks like high on the FOMO boat (18 holdings!!! - i can’t name them all if you woke me up in the middle of the night, that’s how I know I have too many ) It’s a ledge I would like to get off of soon. So hoping by end of next month, I will be down to 12-15 holdings.

Why I hold these positions

HIMS (24%)

• I believe the management team continues to execute their strategy very well. The GLP-1 drug will have a significant impact on the numbers going forward. The company has great margins and just went FCF positive a few quarters ago. And it still growing +40% yoy. You will be hard pressed to find another company growing this fast with a price to sale of 3 handle on it.

• I am planning to trim this to 20% as soon as my trading restrictions come off. The CEO putting his foot in his mouth was too good a buying opportunity to miss.

ELF (11%)

• I feel ELF and CELH are similar in the fact that they are the “in thing” now. Both are gaining market share and operate in large markets, which means there is enough room to grow. The stock run up does scare me but the company keeps executing. I am a little worried about the fcf% shrinking, would love for it to stabilize next quarter. But at +70% growth, it allows for a some room to be wrong.

MNDY (11%)

• This is a well oiled machine now. The business keeps innovating with new products and continues to sell them to growing number of clients. Growth has gotten pretty steady in the low 30% with almost 90% margins and 30% fcf. These are elite numbers and the fcf numbers continues to climb showing the operating leverage the posses. Again, at this high level of execution, very few companies are either valued at this level or have +30% growth.

TMDX (10%)

• Great execution quarter after quarter and proven now they can get ahead of the logistical challenges and operate new businesses to help their primary organ transplant operations. Again, insane growth with an average analyst beat of 21% per quarter over the last 4 quarters. This tells me the market is chasing this stock so that makes me bullish. The main thing is for this company to start going towards fcf positive as that will really solidify the bull case.

MIRM (6%)

• This is a speculative play for me. This business treat rare liver diseases. Their pipeline is strong and they are in the middle of commercial rollout. It’s a +100% revenue grower with 74% margins that is about to go fcf positive. Let’s see if the execution continues. The current quarter was a bit disappointing but not too bad, I thought.
• Interim data from the VANTAGE study on liver disease treatment was favorable. That helped propel the stock nicely.

ADMA (6%)

• ADMA treats infectious diseases with proprietary plasma derived products. This company is growing at +40% rate and margins improved to 47% from 29% a year ago. It is fcf+ and has been rapidly improving the operational numbers. The qoq numbers are consistent as a SaaS company and the average beat is +5%. I only talk about the beat because it tells me the market is playing catch up. Not because I care what the analysts think of it.

ECOR (6%)

• ECOR treats patients with pain and chronic conditions by developing treatments around the vegas nerve and nVNS. It’s a tiny company and I believe it can grow into a small cap business , maybe mid-cap. The operational process for this company are set now and it is hitting it’s strides. The growth is around 95% with +83% margins. And it is successfully working towards getting to fcf+ territory. It will need to continue to execute but has a lot of upside if it can pull it off. Average beat has been around 8%, which to me means the market is catching up to the story.

ZS (5%)

• Nothing to add here than what has been said by so many of the posters, way more eloquently than I can. It’s a workhorse in my portfolio. The only thing is I would like the revenue growth numbers to stabilize here a little bit in the low 30%.

CSTL (5%)

• CSTL is a molecular diagnostic company which develops tests for patients to help with tumor identification and make better disease management decisions. This business is growing at 73%, with 77% margins and about to go fcf positive. The average 4 quarter beat is 12% and management just raised guidance by almost 10%.

DUOL (4%)

• I have really enjoyed the bull and bear case discussions this forum has had on this company. But for me, at the end of the day, the numbers are too good to not own a small piece of the company. The recent pullback in the stock price helped me get onboard and I am looking forward to seeing how DOUL expands it’s user base beyond the traditional language learning business.

BSEM (4%)

• BSEM makes stem cell based alternative products that treats joint pains, ligament injuries, autoimmune diseases. Their AminoWrap2 product has shown significant improvement in treating wound healing in patients dealing with diabetes related foot and leg issues.
• This business has a 100%+ growth with 95% margins and is about to go FCF positive.
• It’s a tiny tiny company with a 145 mil. market cap. But I believe it has a significant growth ramp ahead as it is going to soon expand it’s coverage into active duty military.
• They are also moving up from OTC to Nasdaq soon, so that should unlock new investors.
• The volume profile on this stock has really gone up in the last 6 months, which may signal institutional investors getting interested.

NU (4%)

• This business is very well covered in this forum. As I said, this is a FOMO buy for me, my model put this stock as a top 5 quality business in terms of quality and returns. So who am I to argue with the numbers!

LFMD (4%)

• Another play on GLP-1 drug here. I believe there is opportunity for more than one company to play in this space. Since LFMD is a smaller company, the opportunity ahead of it seems larger. The fact this is a +33% grower with 85% margins and +10% fcf. And it’s still 45 mil. in quarterly revenue, so the runway exists if it can execute.

AFRM (3%)

• This business is well known and I have been watching AFRM for a while now. The number look good to me. 50%+ growth, 84% margins and 13% fcf. The business has executed but the stock has just consolidated all year. So I took a small starter position as the Dec 2023 highs should be a good target for AFRM if the numbers hold up over the next few quarters. That is almost 67% upside from here, so I am in.

ROOT (3%)

• ROOT is primarily a renters insurance company for auto insurance, also does renter’s insurance. It’s a modern day insurance business with very attractive user experience and cross selling opportunity in the future. It’s uniquely positioned in an industry where
• It’s low margin about 30% but with very high revenue growth and positive FCF margins. The last two quarters of execution made me jump into it. The revenue beats were 46% and 25% and with rapidly improving FCF numbers.

APP (3%)

• Again, another FOMO buy for me. Really really elite numbers. 47% revenue growth, 70% margins and 32% FCF. Wow!
• Extremely good management execution and the stock has been a juggernaut. I maybe late to this party but can’t afford to wait on the sidelines for a pullback anymore. Hoping they keep up the execution streak.
• Though the stock has run up a lot, I still feel it is undervalued and should have some legs. Let’s see.

FENC (3%)

• FENC is the first and only FDA approved therapy that treats patients with the risk of hearing loss from chemotherapy. I am sorry if this is not 100% accurate, I am still learning the business. This is about to hit commercial stage S curve. This business has a 95% margin, with a very high growth rate. The company had a logistical issue that made them miss their guidance for the quarter and the stock took a beating. The company is trending towards fcf+ but it is still a couple of years out. It got a great deal with Norgine to commercialize the product in Europe. So the next couple of quarters will provide a great deal of insight in what the revenue numbers might look like. Again a speculative play but looks promising.

CELH (2%)

• Nothing to say here, so much already written about this amazing company. This is one of those companies I identified early but got off the train too quickly. Now back in it and hoping it continues to execute and get more business from outside of US.
• CELH has underperformed since I entered the stock. That’s the sad part. The beauty of it is because of underperformance, it has become my smallest holding. I don’t see a lot of downside from here. I might add a little to this if it breaks $50. Really eager to see next quarter’s results. If they have another hick up, I might pack up here.

Why I sold IOT

• This quarter’s results were way too low for me to stay in this business. It had a 2% revenue growth. I always compare every SaaS company to ServiceNow and NOW had a 2% growth quarter not until it’s quarterly revenue was above $1 billion. Here IOT is down to 2% with 280 mil. quarter run rate.
• They also failed to raise their guidance significantly enough to have me interested.
• They are still quite richly valued and I just don’t see my investment having an opportunity to grow here faster compared to other businesses.

Wrapping Up

This is only my second portfolio summary in this amazing board. Please let me know if there is something you all want me to change that will help the board.

Truly appreciate the opportunity to post here. Cheers and best to all.

[brittlerock]

Whew! What a portfolio! You own a small piece of many companies that hold promise based on the numbers you provided (I’ve not heard of several of them). You’re heavy into medical related businesses. Are you in the field? If not, what kind of screen are you using that leads you in that direction?

One of the companies you are into that I know of is one I like a lot - APP. I’ve got a fairly large position. I think their future growth will largely depend on how well they penetrate new verticals like CTV advertising, web based ecommerce advertising and whatever else they set their sights on. They are doing great with mobile gaming related advertising, but that can’t continue to grow rapidly indefinitely. But for now anyway, I’m happy to ride along. FWIW, another thing I like about APP is that they are extremely transparent. Their IR page is very will organized making it easy to gather their financial information going back several quarters. IMO it is more convenient to see APP’s financial information than a lot of other companies.

[ryshab]

Yeah, my conviction level goes up as the stock performs. So I am waiting to see which of these 14 out of 18 positions stands out in terms of business execution and investment performance. What I am betting is 30% of these will turn out good - aka perform in current trajectory for the next couple of years. And I am sure 50% of these picks are going to make me look very very bad!

Thank you for the insights on APP! Very helpful. I really like this business and am still learning about it. The numbers speak for themself.

I am not in medical field, I am a digital product management guy. Have been doing it for well over 20 years now. It just so happens the current screen results are mostly in the medtech space. There was a time when my criteria was just picking up SaaS companies, as you would expect. I use a koyfin subscription for my screener (still a work in progress). The current criteria is 1) businesses between 10mil to 10B market cap 2) Profit margins above 30% 3) ltm revenue cagr over 30% 4)average revenue estimates revision higher by analysts for last 12 months at least 15%. The 4th criteria has been the key. I could care less what the analysts think but what this tells me is market is playing catch up. And sometimes, if lucky, a few of the turn around stories will also get caught in this criteria.

Just to show how this process of finding business works in my head, I will use the example of ADMA. This got picked up in my screener and then I did the following things.

1. Head to tradingView and use my dashboard to take a quick look at the key metrics. I always love when I find a company with this stair-step setup. All quarters green revenue, growing 10%+, Margins improving rapidly, FCF% improving rapidly, ltm revenue still north of 40%. The last 4 quarter rev are 6, 12, 10, 11% growth - that tells me it is not slowing down significantly. BTW, the white arrow is my entry. For every ADMA, I have 10 stocks to show where after entry the chart looks heading to the bottom right. So this is just for illustrative purposes.
   
   
2. I use koyfin analyst estimate trends to see if the market is still catching up to the story. Here you can clearly see the analysts have no clue while predicting 38% revenue growth already
   
   
3. I use a koyfin dashboard to see how everything fits together numbers wise. Here you can see the revenue, the improving fcf, they analyst chasing, stock ltm rev growth still north of 40%.
   
   

This is my trigger to go research the company. Now I want to know what the hell does ADMA do?!

[DoctorRob]

I have thought about investing in HIMS, but I continue to have some reservations.

1. When I see threads like this (Warning: JUST GOT ROBBED BY HIMS ) I get really nervous - several posts in that thread are concerning, including the length of medical interview (5 mins), receiving the wrong product, having significant difficulty getting this changed, getting refunds, cancelling services, etc. That is actually the #1 post of all time on their subreddit. There are a few other top posts that share some significant concerns, as well. Most of the time I try to focus more on financials, but when we are talking healthcare, these small things can actually end up becoming bigger or perhaps hint at other systemic issues.
2. HIMS uses compounding pharmacies in OH and AZ. Although there is nothing intrinsically wrong with this, compounding pharmacies aren’t regulated by the FDA. From the FDA website: “Compounded drugs are not FDA-approved. This means that FDA does not review these drugs to evaluate their safety, effectiveness, or quality before they reach patients. FDA has investigated many cases of serious patient injury linked to poor quality compounded drugs. In 2012, contaminated drugs compounded by a Massachusetts pharmacy led to more than 750 cases of infection and more than 60 deaths of patients in 20 states.”
   This doesn’t mean something bad will happen, but it opens the door, and it makes the risk-averse part of my brain imagine what a stock price could do if something like this came to light.
3. I’m not sure there is much competitive moat. Don’t get me wrong, I think their model is smart. They use targeted, personalized ads and get great engagement online but there are so many similar services that I’m not sure what they offer that confers superiority in the long-haul. For example, there is a glut of services that cater to telemedicine/remote TRT/hormone therapies and I’m not sure it would be hard for them to expand any more than it is for HIMS.
4. HIMS partnered with Belcher Pharmaceuticals to get on the GLP-1 train. Hunterbrook Media just put out a report discussing that this is a non-FDA approved injection, they are buying it through a loophole that could be closed at any time, and the supplier has ties to past fraud/bankruptcy (concerningly “introduction of misbranded drugs into interstate commerce with the intent to defraud and mislead”), among other concerns.

I have been in healthcare for > 15 years, and although I like the concept of minimizing barriers for patients to get personalized care, I am very cautious especially when we are talking about companies like this. It is hard if not impossible to be a servant to two masters, and the goals of A) providing good patient care and B) maximizing revenue/profit/shareholder equity are not the same, and may not be aligned in many (or most) cases.

I do think that if people are able to get help with hair loss, ED, etc. where they would not otherwise, that is wonderful. And none of the things I’ve listed are necessarily 100% red flags, but at least I would consider them worth pondering. I love upside, but also think it’s healthy to fear downside even more, and be ready for what potential snares could endanger my investments.

[SaulR80683]

@ryshab

• 2021: -35%
• 2022: -76%

Ryshab, I wonder if you have thought about what you did wrong here (perhaps too much leverage???). If you compound those two years, at the end of 2022 you were left with 15.6% of what you started 2021 with !!! That is a really astounding loss and you must have thought about it.

My results for the same two years were nothing to brag about :

• 2021: +39.6%
• 2022: --68.4%

but they compound to me being left with 44.1% of what I started 2021 with at the end of 2022. That’s roughly three times the 15.6% you had left, and I’m just curious as to what killed you. (Options? Margin? It had to be something like that).

Saul

[ryshab]

Saul, yes - I have thought about it quiet a lot. There are so many mistakes, each compounding on one another, to get to that kind of disastrous results. More on this later.

But as you pointed out, I was left with 15% of the original amount I started with in 2021. And even after adding the 2023/2024 ytd performance, I would still be down about 58% from the peak. Luckily I have a career that allows me to steadily add capital to my brokerage account and that has helped me a bit. Don’t get me wrong, it’s still awful but I am currently down about 25% from the peak.

There is another aspect that has helped me through this tough phase. Since I had two brokerage account blow ups in the past, the ability to stomach adversity had gone up.

Coming back to what I did wrong. Trying to summarize the key mistakes, so maybe it helps others to not fall into these pitfalls as I did.

• Had call options on top of stock holdings of companies which once you are in a multi year bear trend, you are doomed. That accounted for about 30% of the total losses. I have since completely stopped doing options. Leverage cuts both ways and unless you know what you are really doing, it’s best to stay away from options/futures.
• I had very little idea of how to go about investing in growth stocks. In fact, I was transitioning from a bad technical trader, which made it worse. I picked stocks that had good LTM numbers and really didn’t understand customer growth, retention rate or even how margins/fcf affects valuation. The top stocks going into 2022 for me were CURI, FUBO, NFE, DM, OPEN, YALA, SKLZ, VRM. Just taking margins, fcf%, customer growth, ntm expectations, would have eliminated most of that list. It was almost like having a leveraged ARKK portfolio, which went down faster than ARKK, and what a disaster ARKK has been since 2021!
• I also did not have a internal valuation framework. This was critical because once I had a cornerstone to compare other companies with, it became so much easier. For me that stock was ServiceNow (NOW). Here is what I saw once I discovered your board, what the stocks members here are investing in. This was an eye opener. I understood if these businesses can keep up with the trajectory of NOW, the stock will do really well. This is just charting revenue but I even just revenue trajectory can get you started on the right path from where I was.
  
  

Hoping to not make the same mistakes again.
Ryshab

[SaulR80683]

Thanks for the clear and prompt reply. I had suspected it was probably options as I thought it would be hard to lose that much otherwise.

When people go up 50% and add 20% more with options it’s the difference of starting with 100 and now having 150 or 170. It’s just gravy.

But if you start with 100% and lose 50% and 20% more with options it’s the difference between now having 50 left or 30 left. It’s catastrophic!

---

“Hoping to not make the same mistakes again.”

Oh, everyone does, just try to make them a lot less often.

Saul

[wpr101]

@DoctorRob wanted to address some of those concerns with HIMS and I’m glad you raised them because I was unaware of the partnership with Belcher Pharmaceuticals which could be concerning. Maybe ryshab has some insights on these points as well.

That is actually the #1 post of all time on their subreddit. There are a few other top posts that share some significant concerns, as well.

The HIMS subreddit you are linking to is 1.5k members which is absolutely tiny, and that thread is mostly dedicated to complaints. Interestingly though the original poster did do an update that,

“Update: after reaching out to the HIMS support team on Twitter/X I was able to get a refund. I expressed to them that while I understand why they can’t accept returned medicine, they should update their process so the fulfillment doesn’t start until -after- the customer has agreed to a change in medicine. Hopefully they consider that and make the change.”

Another place to look for with a lot more review data, is the Better Business Bureau page for HIMS which has 4,030 reviews and a 3.88/5 rating. When you compare them to the other competitors, their competitors have much fewer reviews and much worse ratings.

Ironically, the reviews on Reddit that are along the lines of, “I got GLP medication sent to me in just five minutes, and I didn’t want it”, may be a good promotion for the company. Many people are probably unaware that you can get GLP, hair loss, or ED medications this easily online.

The conditions they treat often have some level of embarrassment associated with them, so the users may not be comfortable asking their primary care physician for these medications. For example, someone may be 20-30 pounds overweight and want to try a GLP, but they might struggle with their doctor to convince them of the need, especially with the medications in short supply.

HIMS uses compounding pharmacies in OH and AZ. Although there is nothing intrinsically wrong with this, compounding pharmacies aren’t regulated by the FDA

HIMS owns these two specific pharmacies completely, however I believe they obscure this information to say “affiliated pharmacies” maybe not to reveal their competitive advantage. These pharmacy assets came to them through acquisition some years back, and as I understand they are dedicated to producing HIMS products completely.

This also somewhat addresses point number three about no competitive moat. I see it as a major advantage that they control the production of their products and don’t rely on a third party pharmacy most of the time.

The FDA still has to has oversee the compounded products and HIMS works with the FDA to get consent. It was confusing to me when first understanding compounded products, that the FDA is still involved. I believe a popular misconception about HIMS is that they are some rogue producer which is not the case. The 503b regulation details more about this compounding products, which can be thought of essentially as a generic drug, or a HIMS branded GLP.

I’m not sure there is much competitive moat. Don’t get me wrong, I think their model is smart. They use targeted, personalized ads and get great engagement online but there are so many similar services that I’m not sure what they offer that confers superiority in the long-haul.

Owning the pharmacies is a major one and they have proven to be able to get more efficiencies as they go. Gross margins are at 82% and have been moving up incrementally over the years. Their brand and scale offer some competitive advantages where they can price low but still offer high quality and be profitable.

They also offer personalized solutions through combinations of drugs that other providers do not. For hair loss, they have a chewable which is Finasteride + Minoxidil, which are often prescribed together. They have many different form factors too on their medications too, so the same hair loss medication combo can be purchased in spray form as well.

They have real doctors on staff available to answer questions and a well designed app. The competitors in the space are very basic and have gone with a different approach. The typical competitor has tried to offer cheap generics with little else in service, and HIMS is able to offer a vastly better consumer experience, hence why they are rated much better at the BBB with many more reviews.

HIMS partnered with Belcher Pharmaceuticals to get on the GLP-1 train. Hunterbrook Media just put out a report discussing that this is a non-FDA approved injection.

Like many short reports the list of items they mention is absolutely filled with misinformation. Going through some of their contentions,

• They are saying HIMS is offering a knockoff and not FDA approved product and compare to rogue spas which offered people illegal products. HIMS is working with the FDA to produce these compounds, and the article never mentioned 503b regulations conveniently
• They link to a single Reddit poster but only provided the quote “I felt like death in bed”. Clicking on that link in the post, the Reddit poster mentions they accidentally took “25 units” when they were supposed to take “10 units” on their first time trying. They left the part out where the person took 2.5x the recommended dose on their first try of the drug.
• Insiders sold 26M of shares they say. Seems like the typical trope in short reports that tries to convince unsophisticated investors something is off here. They don’t mention any SEC violations or any undeclared sales
• HIMS loophole could end at any time they say. First it’s not really a “loophole” because it’s an official regulation, and HIMS business is not dependent on selling GLP products alone
• HIMS could be legally liable to Novo who previously sued spas. So what are they suggesting HIMS would be sued for? The whole reason HIMS is even producing this medication is because Novo failed to produce at capacity.
• Later they try to equate HIMS with producing a counterfeit GLP
• They give the example, a guy was denied four times by his insurance for getting GLPs and had to turn to HIMS. This only shows to me why this brand and platform is so powerful. Users can not even use insurance and still get a better deal, more discretely and reliably then they can from their doctor and insurance
• BPI Labs is providing semaglutide to HIMS. This is maybe the most serious allegation that their provider is low quality or has a bad prior record. Looking into it I’ve found BPI is “registered with the FDA and operate under strict cGMP regulations”. BPI had an issue in 2021 where they had improper equipment and procedures which resulted in them having to fill out a Form 483, or do some additional compliance work.
• They mention some executives at BPI were engaged in illegal activities and were fired, or got jail time. That seems like it was some years ago. Given all the falsehoods this short report is trying to promote, I’m not going give much credibility to their reports allegations about some bad employees at BPI. It’s still running with FDA approval to supply the underlying ingredients, and it’s not as if the FDA is looking to shut them down.

Overall, I find people are making a lot of assumptions about HIMS that are inaccurate. I’d include my self in this group initially who looked at this company at the start and thought they are just a low quality generics provider in a crowded space.

I do believe they have significant competitive advantages with the pharmacies they own, their brand, and their scale. Taking a look at their numbers backs up their story as they’ve transitioned to profitability in the last two quarters.

[buynholdisdead]

WPR, You have done a lot of research on this and I want to thank you. Have you actually seen a safety and efficacy report on Hims GLP-1 product that they are selling? I can’t seem to find one.

Andy

[wpr101]

@buynholdisdead I believe the safety and efficacy reporting is a FDA specific guideline that compounded drugs do not have to go through. However, it sounds like there is still oversight in the process. This article seems to have reached out to BPI Labs to ask about this specifically and their general counsel replied,

“BPI Labs ensures that all adverse events are properly documented, investigated, and reported to FDA within the stipulated regulatory requirements,” Supriya Taneja, vice president/general counsel for Belcher Pharmaceuticals, told Verywell via email. “BPI Labs follows the FDA guideline on Adverse Event Reporting for Outsourcing Facilities under 503B of the Federal Food, Drug, and Cosmetic Act. As part of this process, BPI Labs controls the surveillance, receipt, evaluation, reporting, and tracking of all adverse events.”

There is some process in place to track adverse events, although this process is not nearly as rigorous as the FDA one on new FDA-regulated drugs. Honestly I am kind of surprised the FDA allows the 503b regulation to get around these requirements but they do. It probably has to do with the underlying ingredient semaglutide being the same, and the FDA signs off on HIMS proposed build of the GLP product.

I do think there is risk with HIMS that they could ship out a bad batch of a specific compound at some point which could cause a problem. That’s happened before with traditional manufacturers going back a long time even when JNJ produced a bad batch of Tylenol with cyanide in them and had to take all the products off the shelves in 1982.

It’s hard to quantify how much more risk HIMS has then say Novo in producing a bad batch. At the end of the day it seems like they are playing by the rules, but it is a risk.