September 2024 Portfolio Review - Ryshab

Investment Analysis Clubs Saul’s Investing Discussions
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Performance recap

  • 2021: -35%
  • 2022: -76% (Found Saul’s amazing board Jan 2022, started this style of investing in Mar 2022)
  • 2023: +80%
  • 2024 through September: +65%

Current portfolio holdings: (114% long - 102% stocks, 12% leverage play)

  • HIMS - 19%
  • ADMA - 10%
  • TMDX - 8%
  • POWL - 7%
  • BSEM - 6%
  • MNDY - 6%
  • ECOR - 6%
  • DUOL - 6%
  • CSTL - 6%
  • AFRM - 5%
  • NVDA - 5%
  • ALAB - 4%
  • ASPN - 4%
  • ARDX - 4%
  • LFMD - 3%
  • ROOT - 3%
  • TQQQ - 12% (leverage play, to be sold at Nasdaq ATH)

Changes this month

  • New positions NVDA, ASPN
  • Sold MIRM, NU, ZS
  • Watchlist: TARS

Why I hold these positions

  • HIMS - 19%
    • The GLP-1 story has really created a storm in the investment world. The stock is quite beaten down with the expectation of pending litigation/price war with giants Elli Lily, Novo Nordisk.
    • I don’t see the punching bag being taken away anytime soon. The shortage for weight loss drug is real and HIMS should benefit from it.
    • I want to see continuous execution from them though - need the next product launch and their standard 3% beat in the next earning cycle. But earnings is still a month away so I expect a lot of drama in the next month.
    • I am curious to see if HIMS can beat expectations by more than 3%, maybe 5 or 6% next qtr. The reason for optimism is they are clearly disrupting Elli Lily’s plans as LLY is coming down to compete with them now.
    • Valuation seems still quite reasonable to me. Let’s see how the first full quarter of GLP-1 revenue baked in, looks like.
  • ADMA - 10%
    • ADMA had a extraordinary quarter as revenue came in 24% north of expectations.
    • The stock had a good run and now is quite decently valued. Their pipeline is strong and there is good momentum behind them to capture more market share.
    • They are currently 2% of the IG market and has a chance to get to 20 to 25%. I continue to add on pullbacks. This one is probably going to be a 15% allocation in my portfolio.
  • TMDX - 8%
    • They blew their earnings out of the water last quarter. I expect more of the same in the next quarter.
    • The stock has had quite a run so I kept trimming in the last couple of months. It’s trading at a good valuation of 15 P/S now. But it can easily be trading at 25 P/S for all I know. So I will ride out the current position and try to keep it between 5 and 10%
    • Really looking to see if they can make a move towards fcf+ territory over the next few quarters.
  • POWL - 7%
    • Their electrical equipment business in Oil and Gas, Petrochemical and Utility sectors is seeing great traction. The business has hit explosive growth curve over the last few quarters. Over the last two quarters their average revenue beat was 25%. I am not sure how to value this kind of business but I am counting on them to stay on this growth curve for a while. (based on the commentary coming from management and execution)
    • The stock has had quite a run but valuation still seems reasonable. Main reason for that is growth has picked up and now seems to be steady at 50% YoY.
  • BSEM - 6%
    • This is a speculative play for me. The current quarter results were really good. The revenue beat was 69% and they just went FCF positive.
    • If they keep this up, I don’t see how the stock trades with P/S 1 and something handle. But tiny volume so as with micro cap stocks, I expect returns to be lumpy. News will drive major moves but I am tracking the underlying story and so far so good.
    • Two concerns - Medicare coverage is about to expire for their products and revenue could see a sharp decline. And share dilution but it came at the back of a huge earnings beat so I am ok for now, but not thrilled. Will keep a close watch if these become major issues and will adjust position sizing accordingly.
  • MNDY - 6%
    • Another good quarter from Monday this month. Consistent beat and raise.
    • The stock has quite richly valued, so I trimmed some this month. But I see no reason to sell out as I think MNDY will keep trending higher.
    • What I like about MNDY is their consistency. The last four quarter growth numbers are 8, 7, 7, 9%. And I expect another 7% incoming.
  • ECOR - 6%
    • Another tiny company in my portfolio. Had good quarterly results.
    • I expect their new direct to consumer product lines of Truvaga and Tac-stim to do well and add more to the bottomline.
    • Their core product gammaCore is still growing rapidly. Given they have more product launches in the pipeline and international expansion happening, the execution will be the key. The demand and tam is there if they can perform.
    • Based on this quarter’s results, no change in allocation for me.
    • I am not a fan with the 28% dilution in the last 12 months but it comes with the territory for micro caps I guess.
    • ECOR is finally starting to catch a bid with some volume support. So hoping it continues.
  • DUOL - 6%
    • This business has some elite level numbers but is valued in line with my expectations.
    • The numbers are starting to slow and the next two quarters will show more slowing of revenue growth.
    • Duol went on a incredible run in September. I will most likely exit this as soon as market reaches ath.
  • CSTL - 6%
    • Really good results this quarter with 25% revenue beat and FCF firmly into positive territory. Growth story intact and a slow volume pickup underway.
    • I expect this to trend higher over the next months. The main reason is the rapidly improving fcf numbers.
  • AFRM - 5%
    • AFRM’s results were quite good this past week. They beat both top and bottomline numbers quite handily.
    • Technically, the stock has been consolidating for over 6 months. So I think this breakout might have some legs. The business is generating over 10% FCF now and that should put a floor on it’s valuation too.
    • In September, Affirm had a good run. My goal for this holding to see it return to previous pivot high and it has done that. So this is less attractive now. I might get out of this too if it gets extended here.
  • NVDA - 5% (New Position)
    • There is nothing to add on this amazing juggernaut of a business. Although NVDA has had a great run, I still feel it has lots of room to grow. The recent pullback gave me an opportunity to get in. I have been eyeing this for a long long time, own it in my other portfolios but not in my growth brokerage account. So I am happy to start a starter position. Looking for a 34 B upcoming quarter with steady margins at these high levels for FCF.
  • ALAB - 4%
    • Thanks to @wpr101 for bringing this business to our attention. Right of the bat, these numbers are kind of stellar for a small sized business as this one.
    • The stock did pullback from it’s IPO price but is still quite richly valued. And as Bear pointed out, can it really be a sustainable grower is the main concern.
    • It’s in the right industry with a lot of tailwind. Improving high margins is the main reason I took a starter position as I learn more about the business.
  • ASPN - 4% (New Position)
    • This is a disaster. I was in, then out and then in again. The more I analyzed this business and the numbers it is putting up, I think ASPN has legs and should grow from the starter position in a few months.
    • I think they are in the right trajectory and even if it takes a few more quarters to get to positive cash flow, the sheer growth trajectory should help the stock catch a bid. Let’s see how it goes.
  • ARDX - 4%
    • This is a new position for me. Ardelyx had a great quarter and I see potential in this biotech firm.
    • Their main product IBSRELA has had great market penetration.
    • They are currently in the high growth curve, has great margins but is transitioning from a FCF negative to FCF+ business. The latest quarter was around -25% FCF. I expect over the next 3-4 quarters, the business to go FCF positive.
    • They launched a new product XPHOZAH and that has seen a lot of success as well.
    • The numbers were too good to not take a starter position. I expect them to put up a 100 mil. upcoming quarter. And it should get to FCF+ in a few quarters too.
  • LFMD - 3%
    • This is another play on the GLP-1 drug. With the LLY news, LifeMD took a bigger hit than HIMS. So far their execution has been pretty good.
    • The latest quarter I thought was ok. I am going to stay the course for now but keeping a close watch on this if things go south.
    • This stock hasn’t moved in 3 months that I have been in it. In fact, this is my biggest drag on the portfolio with -35% returns ytd. I am really trying not to add to my losers, especially after it’s a full position. So I am going to hold as long as my thesis stays intact but definitely not adding to this or ROOT.
  • ROOT - 3%
    • This is clearly gone parabolic in terms of revenue growth and stock price. They just went FCF positive and seems like there is still some robust growth ahead. The key will be seeing their margins improve and if they are able to retain these customers when the insurance is renewable in 6-9 months time. This coming quarter has seasonality built into it where the numbers are expected to be softer (commentary by management), so I am looking for operational improvement for now.
    • ROOT has a very Affirm like consolidation pattern which I took based on the projection and it fitting my style of investing. But this is another one which hasn’t seen a blast off yet. As long as the numbers look good, I will hold onto my ROOT position. The underlying business seems to do well so far.

Why I sold these positions

  • ZS
    • The reason I got out of all my 3 positions is mainly because of either growth slowing or I have better opportunity that needed capital allocation.
    • For ZS, the NTM growth looks like will be below 30% and that is too low for me to be interested.
    • Also the business is currently quite richly valued.
  • NU
    • With NU, my main concern is after doing 16% and 13% quarters, the last quarter was 3% growth and the upcoming quarter might be flat or lower than last quarter.
    • I know analyst estimates are showing 30% for 2025 but I would like to see the next two quarters first and then jump in again. This may never give me an opportunity again and that’s ok.
    • I swapped this with NVDA so as long as NVDA moves higher, I should be ok.
  • MIRM
    • The main issue I have with MIRM is it is having a hard time beating analyst estimates now. Which in turn means that expectations have caught up with the story, which I interpret as market has caught up to the growth story.
    • The other issue is ntm growth is most likely going to be below 30% or just about there. So starting to get out of hyper growth phase.
    • And it is still not FCF+. So that should keep a lid on valuation too.

My current watchlist

  • TARS
    • Don’t ask me why? or how?! but I have found another biotech company!!
    • Their primary product XDEMVY kills mites in your eye lashes. Who knew there is a market for this.
    • So they are the only FDA approved product and is just beginning to do commercial launch. They also have other products that are variations of this but in other forms - in different stages of approval process currently.
    • The business has a 1.25B market cap, has started commercialization this year and is already upto 40 mil. revenue per qtr. 2025 estimates are at 275 mil. which according to analysts will be 70% yoy increase over 2024 revenue. However, the last two quarters they beat their earnings estimate by 54 and 26%.
    • High margins of 93% but -150% FCF, though rapidly improving. The stock got cut in half recently and gave a descent entry but I missed that opportunity. So for now in my watchlist, looking for an entry.

My current philosophy for owning a business

  • NTM revenue over 30%
  • A ntm rev growth, fcf and dilution combination score using an equation. Higher the better.
  • Revenue trend for analyst upgrade of 20%+
  • Average analyst beat of over 5% in the last four quarters
  • Consistency in QoQ revenue growth
  • Improving margins
  • Improving FCF
  • Improving or steady - share dilution
  • blowout earnings in last Q
  • margin of safety - valuation model showing 100% growth in the next 2 years

Wrapping Up

September turned out to be a good month overall for my portfolio. I continue to be amazed by the quality of posts here. The depth of knowledge that the board members have on businesses and the high quality new names that are introduced here.

Truly appreciate the opportunity to post here. Best wishes to all!

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Duo just released their math and music programs to the app. I have been waiting for some more avenues of growth for a while. Messed with one lesson of music this morning, it is interesting, will have to see if it keeps my attention.
If this adds growth, I’ll keep holding my position.

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This company is looking really interesting! It got all the way up to $107 a share in February 2021 too when they had only 21M of revenue and were not profitable. Their TissueCypher product number of test reports is up 230% yoy and 39% sequentially.

There is a huge step up in revenue and net income this past quarter,

Revenue
62M → 66M → 73M → 87M

Net income
-6.9M → -2.6M → -2.5M → 8.9M

The market cap seems quite low for the numbers they are putting up too, getting close to 100M of quarterly revenue. I would have expected a higher market cap just glancing at the numbers. Interesting the data sites I’m looking at have a blank Forward P/E meaning analysts expect the next four quarters to be negative on net income. Seems somewhat unlikely they wouldn’t be able to be profitable over the next year given where the current quarter landed, and that could present significant upside for the stock.

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I feel the same way wpr101. Here are a few thoughts about this business:

  • What is interesting about Castle Biosciences is about 4 quarters ago, it was printing -30% TTM FCF, now it’s +9%
  • For the last three quarters now, they have got their act together in blowing past the expectations. The 2024 guide over the last 12 months have been revised up by 40%
  • Their share dilution is quite reasonable at about 8% TTM
  • According to their investor presentation, the TAM is 8 B. So if they can capture 30% of that TAM, revenue potential is 2.4 B in the future.
  • I like that their vision statement mentions investors. So they are focussed on investor value. I also like that investors are after patients, clinicians and employees. I feel like that is the right priority for a business to focus on.
  • From a pure valuation perspective, they are trading at about 30 FCF/Sales now. They did about 73% TTM rev. growth, so I think them doing a 40% NTM rev growth is pretty reasonable. Their FCF in July 2020 was as high as 25%. So if they can improve over the next year their FCF from 9% to say 15%, then you are looking at a NTM revenue of 401 mil. (40% over current 287 mil. TTM rev. ), a 15% FCF on that is 60.15 mil. And if it can hold the same 30 FCF multiple, the potential market cap could be 1.8 B. That’s a 130% return from today’s valuation. This gives me hope that this should start moving if they keep performing.
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Even with the Medicare non-coverage of their decisiondx-scc test looming? I know only 9 analysts cover CSTL (according to Yahoo Finance) but on average they expect revenue to be lower next year. Maybe that’s too pessimistic, but 40% growth seems optimistic. How’d you get there?

I have a tiny position too…I just think we need to be realistic.

Bear

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That 40% revenue growth probably is optimistic but here are a few reasons I think they have a shot.

  • If you see their non-dermatology business, it is growing at 150%+. So over the next 12 months, that should contribute a lot more to their revenue.

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In this thread because I heard about this company on X from a drowsy-bear-like figure. :wink:

Some of the language I’m hearing reminds me of Dermtech, which I was buying at $60 and all the way down to $20 thanks to a Fool rec. Now listed as DMTKQ, $.0210. Written off as tuition! Now, different story in that Dermtech had $13M in sales and $110M in expenses or so, when they went chapter 11.

My biggest losers have been biotech and thus I’ll warn:
beware of any language about certain keywords such as “Pipeline” and “favorable studies” and such when it comes to biotech. Follow the numbers, not the story. Stories allow the insiders to get off a sinking ship without even getting wet.

Not saying that is happening here, I’ve not looked into it all.
But I wouldn’t count on anything quickly happening in terms of Medicare (as in years) and I discount anything related to pipeline. Pipelines are impossible to valuate.

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I am looking to get a better understanding of why the analyst’s are projecting a steep decline and flattening of revenue numbers. Analysts are projecting the following revenue, which doesn’t make sense to me,

87M (current) → 79 → 58 → 59 → 65 → 66 → 68

While Castle gave these numbers on the number of tests in the last quarter,

DecisionDx - Melonoma +11% yoy, +14% qoq
DecisionDx - SCC +60% yoy
TissueCypher +230% yoy, +39% qoq
IDGenetix +83% yoy

Reading into the DecisionDX - SCC, sounds like Novitas Solutions which is a contractor for Medicare determined their peer reviewed literature didn’t establish the validity of the tests well enough, so Castle is making another pass at it. Still this product is up 60% yoy on tests so it doesn’t sound like it depended on Medicare? And this specific product makes up about 20-25% of overall revenue.

Could the analysts just be taking the old projections of 260M yearly revenue which is now 275-300M revenue and be filling in the numbers?

For what it’s worth I don’t put a whole lot of weight on analyst estimates in general since the average analyst can be covering 50+ companies. Stock analysts at these firms are often entry level employees, doing a job which most in the industry consider grunt work. They don’t want to rock the boat too much with estimates and typically extrapolate numbers out making them come within the range of other analysts. Most of the time they are not really doing serious research on a company - just my take.

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