Zen Mind. Beginner Mind.
My portfolio at the end of August is,
Transmedics (TMDX) - 19.2%
Hims & Hers Health (HIMS) - 18.8%
AppLovin (APP) - 18.1%
Astera Labs (ALAB) - 14.7%
Nvidia (NVDA) - 14.6%
ADMA Biologics (ADMA) - 8.3%
Powell Industries (POWL) - 6.3%
The big changes from last month were I sold Supermicro and ELF, both of which had been top conviction positions where my confidence in them evaporated overnight. There’s two new positions, Astera Labs and ADMA Biologics, along with increasing my position size in Powell Industries. I added to HIMS after they reported a great quarter, and slightly trimmed Transmedics, AppLovin and Nvidia.
One topic that has been top of mind this month comes from the Mark Douglas books on trader psychology. A point he emphasizes is how every investing situation is unique and that most investors attempt to categorize or group current inventing opportunities into situations they have seen before. However, one company is not like another and the past does not equal the future. This thought seems relevant to both my Supermicro and ELF positions where I couldn’t imagine last month closing out both of these positions in a single day.
I will start with reviewing the companies I sold since these had such a huge impact on adding cash to my portfolio and gave me a push to reallocate and also open some new positions,
Supermicro - SMCI
I sold all of my shares after the company delayed their 10-K filing which came one day after a short report was released on the company. Unfortunately I didn’t even have time to investigate the short report in full before this action took place although the stock was already going to get crushed by the delay in financial reporting. It’s just simply unacceptable for a company which has been operating over 30 years not to have this issue under control.
The filing of the 10-K is for the quarter ending June 30th, a quarter they’ve already reported earnings for, so it should have been a simple add to plug in the numbers they have and have the auditor sign off. I’ve seen the post that the filing is going to have no “material impact”. However, the delay already had a massive impact on share price and the reputation of the company, seemingly giving possible validity to some of the topics in the short report.
Unfortunately it doesn’t matter how much of a tailwind from AI or how big the demand for their product is, I cannot hold a company like this which cannot get their financial reporting together. Maybe they need to add in their Risks section for the 10-K that management could shoot themselves in the foot by delaying their financial reporting a day after a short report was released.
I get the sense that the CEO Charles Liang hires who is close to him, whether that’s family members or close acquaintances and these people may not necessarily be the best for the job. He’s an engineer and built the company from the ground up building what seemed like a superior engineering company that had an advantage in liquid cooling, a technology which seems mandatory for upcoming advanced AI chips. However, this laser focus on engineering may have come at the cost of putting proper financial controls in place. From my own perspective, this doesn’t seem like a business that would be tricky to do accounting for but somehow they cannot get it together. One warning sign was possibly this strategy the company was doing to pre-announce earnings if they were above expectations. I thought this was very strange because it created this dynamic in the market where if they did not pre-announce the stock would crash.
This also was not the first strike against them as I expected this last quarter to be a huge blowout. That was because on the prior quarter they said they got 800M in inventory right in the last week that would be going into the next quarter. I thought that was basically guaranteeing a big next quarter, but they again got supply blocked, and stunningly reported a gross margin collapse for a company which was already running on low margins.
ELF Cosmetics - ELF
I posed the question in this thread asking if management gave any explanation why sequential revenue was flat. The CFO on the company was defensive on the call, doubling down on any financial questions to say how amazingly proud of the results and the team they are. From my perspective there’s only two possibilities, the CFO is incompetent or is misleading investors by not revealing the reason for the sequential flatness.
Ironically the company also this quarter came out with the “So many dicks” campaign this quarter where they noted “Turns out there are more men named Dick (Richard, Rich, and Rick) on corporate boards than entire groups of underrepresented people.” I found this advertising to be distasteful at best because instead of celebrating diversity on their board they are looking to denigrate someone else. Additionally, I don’t understand the purpose of this marketing when they are trying to get teens on board with their products. Meanwhile this C-suite at ELF has demonstrated financial incompetence by giving guides that make no sense, and not being able to answer basic questions about their growth rate that every investor should be wondering.
The company says they moved 20% of their manufacturing away from China but gave us no further details from what I could gather. I did not like they aren’t mentioning the new location or detailing any of their strategy here.
Reviewing the companies I own,
Transmedics (TMDX) - 19.2%
Transmedics is my highest conviction position right now and I wrote up some thoughts on the earnings along with reviewing the investor presentation they did recently. Usually these investor presentations are layup type questions, but this conference actually shed a lot of light on how dominant their position in the market place is. While their organ transplant business is taking off, the transport and services are also growing. I believe this company has a big vision and could be a much larger company years from now as they expand into adjacent markets like kidney transplants and open up to international opportunities. They seem able to grow the category of organ transplants themselves through their business.
Hims & Hers Health (HIMS) - 18.8%
HIMS reported what I thought was a fantastic quarter. Revenue came in at +52% yoy and they guided for +70% yoy growth on their next quarter, even caveating this guidance includes any changes to the GLP-1 situation. I believe the investment community has a misunderstanding about the GLPs for HIMS in that if Ozempic and Wegovy manufacturers can produce, then HIMS can no longer sell GLPs. From my understanding HIMS can sell Ozempic brand name if it’s available. I do not believe the FDA is in a rush to turn off the compounded semaglutide that HIMS makes because the demand is so high for the GLP-1s.
When this company first got mentioned on the board, there were some concerns that revenue was bumping up by only 20M each quarter, and that the revenue growth rate year over year had come down from ~80% to ~40%, and it was unclear if they company could hold steady at 40%. For the next quarter they are guiding from 50M+ sequential revenue added, and a ~70% growth rate.
AppLovin (APP) - 18.1%
I thought AppLovin had a pretty good quarter and after a second review of the expanding TAM opportunities, I like having a big position in APP.
AppLovin is already very profitable and has the potential to get into CTV and web advertising where the pilot programs are giving results ahead of management’s expectations. I believe management already had high expectations for these products too.
The company also appears undervalued to me as their forward P/E is 20, for a software company which has plenty of room to grow, and is deeply profitable on every transaction that occurs in their ad tech systems.
Astera Labs (ALAB) - 14.7%
It is rare for me to find a new company where I am willing to start a top conviction position in right away but Astera fits every category for what I am looking for in a growth company. There’s an ongoing thread for this company, and I’m still ramping up on their product offerings.
First this is ~300 person company and a 6B market cap, where I believe there is tremendous upside. Revenue growth year over year is technically 619%, as this year just lapped the last year where there was no AI sales. The company connects GPUs clusters together whether this be at the chip to chip level or the row to row level in the data center. Since each company has different use cases for AI, there are many custom solutions out in the wild where companies build out their data centers.
The next quarter is guided for 95-100M revenue and they are just at 76.8M revenue now so this is a big step up for the next quarter. They IPO’d back in March 2024 when the AI market was hot and the stock shot up to $85 but now sits in the mid $40s. Looking who is backing this company there’s tons of high profile investors from both tech and investment banking, so this one has some hype behind it. However, I feel the narrative and numbers back up this hype and I like that the price has come down some.
Comparing to their competitors, there’s the behemoth Broadcom which is about 100x the size of Astera, and Marvell which is about 10x the size of Astera. Marvell reported a strong quarter this week and Astera was down, but I actually found this to be an encouraging sign as the TAM for these products is growing with the growing complexity of AI systems. I’m planning to check out the Marvell earnings at some point just to confirm there’s not some competitive threat coming out. Also it’s worth knowing that Marvell tried to buy Astera before they went public for 4.5B, but the company was not sold.
Nvidia (NVDA) - 14.6%
Nvidia has been pretty well covered by the board. I sold off a little bit going into earnings as it has risen a bit and I was uncertain any results they could put up would impress the market. That seems about accurate as they had about a good a quarter as you could imagine considering the Blackwell delay but the stock went down. Expectations are obviously very high for Nvidia but they seem to be delivering.
ADMA Biologics (ADMA) - 8.3%
I’ve been impressed with what I discovered about this medical company and wrote up some thoughts about the company. They collect plasma from donor centers to make their drug, and business is booming. Profitability is also strong which is rare for a company like this which usually operates as a loss leader until they gain massive scale. I’m still learning about this company and have medium confidence.
Powell Industries (POWL) - 6.3%
I had POWL on my radar for a few quarters, but this last earnings really set them over the line for wanting to invest. There’s a discussion of the company in this thread.
They are growing revenue at 50% and are getting more data center business. The P/E is 15x trailing so it’s not too expensive by traditional metrics. I’ll definitely be watching that revenue growth can continue at this pace, and hopefully it’s not a situation where they have reached capacity on production and will level off. They are acquiring new land and building areas recently to improve production.
Recently POWL presented at the Midwest IDEAS conference which was extremely helpful to understanding this business. The CFO sounds smart and has a good grasp on the details of the business. I’ll be looking to update the POWL thread with my findings from this conference.
Companies I looked into this month included,
Sezzle (SEZL)
This 760M market cap company had 56M of revenue (+60% yoy) along with 29.7M net income last quarter. They are in the BNPL later space competing with Affirm. What drew me to the company was they are already profitable which is in contrast to Affirm. Additionally, they are one tenth the size on both employees and market cap.
Their paid subscriber count trend is incredible which goes from 132k → 155 → 195 → 230 → 307 → 371 → 462. After finding all these details I started a tiny position.
However, I reviewed the S1 and found a massive red flag. The used to report metrics of “active merchants” and “active consumers”. Active merchants in 2021 was 47k and then 42k in 2022. Active consumers was 3.4M in 2021 and 2.9M in 2022. Yet the company stopped reporting these metrics. I had to go into the 10-Q filings to find active merchants in 2024 is 24k and active consumers is 2.6M, and both metrics are down since 2021! I immediately sold after learning the company is going out of their way to hide metrics.
Reconciling how paid subscribers is growing so much, they have an option with premium memberships to report to credit agencies as you pay back your BNPL Sezzle account. This is catching on like wild fire because users can boost their credit score easily this way. However, I feel this may be a temporary loop hole with credit agencies, or Affirm could copy this feature.
Entrada Therapeutics (TRDA)
The financials are incredible for a 620M market cap company which has 95M (+421%) of revenue and 55M of net income in the last quarter. They do not do quarterly conference calls which is a red/yellow flag to me, however they do financial filings such as the 10-Q which contain even more information than a typical earnings report.
Business is booming but it’s all dependent on a single contract with Vertex pharma. The drug themselves treat muscular dystrophy.
What made me bail on taking a position is they track a metric “deferred revenue” which is how Vertex pays them to develop. In the last quarter deferred revenue was negative which as I understand is actually a good thing, they basically over delivered. Still this metric is a bit hard to understand for me and I didn’t feel it was worth going further investigating although I am tempted by the financials here.
Oscar Health (OSCR)
They are an insurance tech company where most of the revenue comes from health insurance premiums. While revenue has been above 40% growth the last four quarters, if I’m recalling correctly some of this revenue comes from combining entities in an acquisition. They claim tech is their competitive advantage but it did not sound like a tech first company.
GigaCloud Technology (GCT)
I took another look at GigaCloud as they somehow put up huge numbers again with 311M in revenue which is +103% yoy. They had guided for only 265-280M revenue too. For those unfamiliar they ship furniture and have distribution centers around the world. They are one of the few suppliers which has this global reach for the product. They say headwinds include shipping costs and weak furniture sales, however this current quarter is really benefitting from the summer season. The reason being the Noble House company which they acquired specialized in outdoor furniture. Gigacloud’s guide is what pushed the price down as they guided for a sequential decline in revenue. However, this company typically sandbags huge on guides, but I don’t have much faith in this company overall. If they keep beating like this again I might take another look. The company appears absurdly cheap at a 7 trailing P/E.
Exodus Movement (EXOD)
They are a platform for managing, securing, and exchanging crypto. Portfolio management, staking, and NFTs are also offered with “wallet as a service”. It’s a small company at 400M market cap and they had a nice upward trend in metrics going into this last report, but the last report was a sequential decline in revenue even though yoy it was still up 80%. With these crypto related companies it’s always hard to know what portion of their business is benefitting from crypto itself as opposed to their own innovation.
TKO Group Holdings (TKO)
They own UFC and WWE and revenue was 851M up 179%. Diving in a bit more the reason it’s up so much on revenue was they did not have WWE in their previous financial results, so it’s not an apples to apples comparison.
I watch a fair amount of mixed martial arts myself so I’m fairly familiar with their business from a product standpoint. Increasing ticket prices has been driving revenue, but the company has 2.7B in debt. Also the company has been co-promoting with the Saudi’s who are investing massively in sports. For those unaware, the Saudi’s control most of boxing now and also invest in golf and soccer. I’m just now sure how long the Saudis will be dumping money into sports for, or how their arrangement with the UFC works for their upcoming event at the Las Vegas Sphere. UFC and WWE seem like great franchises, but I don’t think this level of growth is sustainable over the long term.
MannKind Corporation (MNKD)
They are a Biopharma company which makes insulin which a patient can inhale and this works even faster than an injection. The last quarter had trend had a bit of a drop off on what was otherwise a nice acceleration in the business. Net income had gone from 1.7M → 1.4M → 10.6M → -2, and revenue which had been growing in the 60%+ range came in at 49%.
Newmont Corporation (NEM)
They are a 60B market cap mining company which is somehow growing revenue at 64% this last quarter. Turns out it’s mostly because the gold price is up and copper price is up. Only 10% of their mining is copper though as I learned copper is often a byproduct of mining for gold.
Argenx (ARGX)
They make antibody therapies for severe auto-immune disorders. What dissuaded me from wanting to invest is they said they are targeting getting to 50k patients by 2030 which sounds like a tiny market. This is already a 31B company though with 489M revenue (+74%), and they are just getting close to break even on profitability soon.
TG Therapeutics (TGTX)
The numbers are impressively growing as this therapeutic company has a solution for treating MS. Overall I just didn’t find the narrative on the company exceedingly compelling, although apparently it’s on growth stock traders radars as it was on the top of the IBD 50 list for a bit.
Concluding, I’m looking to learn more about the businesses and products of my newer companies as this was a hectic month for my portfolio. It’s not that often that two top conviction positions are gone like this, but it just illustrates the unpredictability and uniqueness of the market.