Wpr101's January 2024 portfolio update

My current portfolio at the end of January 2024 stands at,

Super Micro (SMCI) - 18.3%
Monday (MNDY) - 14.9%
Elf (ELF) - 14.8%
Celsius (CELH) - 11.2%
Samsara (IOT) - 11.1%
Axon (AXON) - 11%
Cloudflare (NET) - 10.2%
Transmedics (TMDX) - 3.9%
Nvidia (NVDA) - 2.4%
AeroVironment (AVAV) - 1.7%
Amprius Technologies (AMPX) - 0.5%

The trades I made this month were to trim Super Micro and Samsara slightly and I started one new position in a company called Amprius Technologies. I trimmed Super Micro because it’s risen very fast, although justifiably based on their earnings which I had a writeup on. With Samsara I am in consensus with other board members that publicity and copying of their product is a bad look, but I’ll take a wait and see approach on the next earnings because the last earnings was very impressive.

I completed reading another book on trading/investing by Mark Douglas called The Disciplined Trader. This is the first of his two books, the other one being Trading in the Zone. While the books are more targeted at what you would call “trading”, I believe they are extremely relevant to an actively managed concentrated growth portfolio. Additionally, I’ve setup a coaching session with a trading coach Jared Tendler who wrote The Mental Game of Trading also an excellent book.

One thing I’ve seen Saul emphasize is thinking for yourself when selecting positions. I’ve noticed in my own results that the times I’ve been selecting stocks the best was when I was been independently researching companies as a starting point. This is balanced by taking in information from others, and re-evaluating positions based on new information. One of my goals is to actively seek out new companies and be open to investing in new industries.

Previously I think my philosophy became rigid about investing in SaaS primarily as a preferred business model. I also subscribed to “buy what you know”, or Peter Lynch style investing. Since I knew software well, I felt that I had an extra edge in this field. However, as we all saw recently stocks in a single business model like SaaS can trade in tandem and that’s extremely painful when the industry as a whole craters ~75% in a short period. I’m now looking at a more holistic approach of finding growth companies that may be outside of my typical wheelhouse.

To get good results from this approach I’m reviewing new companies each month and looking to create a flexible approach. This month I reviewed four new companies: Aspen Aerogels (ASPN), Shift4 Payments (FOUR), Nu Holdings (NU), Amprius Technologies (AMPX), and I looked at the latest earnings from Enovix (ENVX) since they are a competitor to Amprius.

Amprius Technologies (AMPX)
First I’ll start with introducing Amprius since I started a position here. They make silicon batteries, have deals with Airbus, AeroVironment, and other big names, and are adding customers very fast. And are ramping up production capacity by 500x in the coming year. They cannot meet the demand for the product as is. This is a very small company with a 370M market cap and low revenue currently. But the trend of where their revenue has gone the last three quarters is impressive going from 0.7M → 1.6M → 2.8M.

I’ve reviewed their lastest earnings, their S1 filing from 2022, and various press releases and conferences on their investor relations page. Their investor relations page is impressive for a company of this size, linking to PDFs, transcripts and the audio webcast.

I came across this company when researching AeroVironment (AVAV) which I also have a position in and wrote up recently. AeroVironment is a military drone maker that makes “suicide” Switchblade drones where they have 5 pound drone and a 30 pound drone. The 5 pound drone is meant for targeting lighter targets like infantry and trucks, while the 30 pound one can take out a tank or heavily armored vehicles.

The article I found about this company said they are supplying the batteries to AeroVironment. The battery provided increases the flight time of the Switchblade drone by 50% compared to traditional batteries and is compatible in terms of swapping batteries.

Some notes from Q3 of their last earnings call,

  • Looking to build additional capacity as quickly as possible to meet increasing demand
  • Signed purchase orders with 3 premier electric aviation manufacturers for custom cells
  • Bridgestone World Solar Challenge race, 4 teams powered by Amprius batteries swept the top 4 places out of 32 teams.
  • In this challenge they got 30% better capacity for the same weight, and expected to be the standard across all teams by 2025
  • 3Q shipped to 38 customers up from 27 in second quarter
  • The group of 38 includes 18 new accounts up from 10 new last quarter
  • Volume purchase order from a premier eVTOL OEM during the Q
  • Pipeline for new customers remains strong
  • We still face demand which greatly outstrips our supply
  • Expanding production facility is main priority
  • Customers that are over 10% of revenue is limited to 4, down from 5 last Q
  • 76 full time employees
  • 54M in cash, no debt
  • Will spend 20-30M on their new Colorado plant to reach 1 Gigawatt capacity up from current 2 Megawatt capacity currently (500x increase)
  • Our technological advancement continues to bring in significant customer demand
  • Large TAM in aviation battery market of 49B
  • We have significant leverage in terms of product selling price because this is the only product which can perform at the desired level
  • In terms of signed agreements have several tens of megawatts capacity engaged
  • 2024 capacity already sold out, primary commitment to existing customers

From Needham and CES conferences,

  • Passed military spec nail penetration test
  • First customer order was AirBus (who owns a large number of shares too)
  • Highest capacity in industry
  • Drone goes from 24 minute to 42 minutes flight time, wearable watch goes from 3h → 6h, Tesla model 3 goes from 310 miles to 547 miles, wearable combat vest doubles time with Amprius
  • BAE systems and US military are customers, delivering to USABC a military consortium as well
  • Everything is off the shelf for building, can easily scale up or use other’s manufacturing facilities of other companies if needed
  • Working with leading industry partners
  • UAV drone massive increase in endurance without weight or volume added
  • Supporting HAPS or stratospheric satellites
  • eVTOL, extremely fast charge and greatly extended service radius
  • Amprius is designed into Airbus HAPS
  • Significant purchase orders placed through 2024
  • AeroVironment is also strategic investor, and purchase order commitments in 2024
  • Teledyne Flir, in commerical stage with orders in 2024
  • BAE 3 year commercial agreement signed
  • Nine development programs ongoing
  • Second multi year development program for low cost EV batteries

Takeaways from S1,

  • Batteries are a direct drop in replacement
  • Demand exceeds capacity
  • Shipped over 10k batteries to date (2022)
  • Sales and G&A is 3x budget of research
  • Scaling up to gigawatt capacity on Colorado, “Copy Exact” methodology
  • HAPS operate at 65,000 feet, Airbus using
  • Believes Amprius can compete in EV market
  • Higher energy (longer range), high power (takeoff/landing), fast charging, can handle extreme temperatures, long calendar life, acceptable cost
  • Air cargo certifications and military specific tests
  • Driving range of Tesla 3 increased 75% using Amprius
  • High density power can enable vertical take off and landing of small aircraft
  • Set endurance record with Airbus HAPS Zephyr S, flies at 70,000 miles, flew continuously for 25 days, and got 2021 innovative supplier by Airbus
  • Goal: “Become market leader in high performance lithium batteries”
  • Engaged with 50 potential customers, 30 of which have tested and validated that batteries exceed expectations
  • Tech was developed at Stanford in 2008

In summary, I am incredibly impressed with what this company is doing. To be clear this is a very high risk and very high reward type of company being this small. I’ll be following closely to see if the next earnings and following can boost revenue, and I will be tracking how their production facility is coming along with a massive capacity to increase revenue. This company is aligned with all the right players: AirBus, AeroVironment, BAE, other defense contractors, and the military.

Enovix (ENVX) - Q3 earnings review
I recalled Enovix was also a innovative battery maker that was mentioned on the board. I thought to check how they are doing, and they seem like an absolute joke compared to Amprius!

First their CFO said on the call they achieved a record revenue for the quarter however they did not mention what number. I looked it up and it was 0.2M, or literally $200,000 from shipping some sample cells to the Army. They also acquired a South Korean company and now project the next quarter to be 3-4M in revenue, but almost all that revenue comes from the acquisition. An analyst asked what percent of that 3-4M is coming from organic, and they said only 200k still, so almost all projected revenue is from the acquistion!

Enovix has over 300 employees or about 5x as many as employees as Amprius, and about the 4x the market cap, yet they have basically zero revenue. They kept mentioning on the call “demand” for their product which I understand to be they are shipping samples to customers only. This is way different than Amprius for when they said “demand” they mean the customer is looking to buy the actual battery, not try out some samples.

In the EV market Enovix makes it sounds like it will be an easy path, while Amprius detailed how the EV business is hard to get into and all the reasons they won’t go there yet. Enovix keeps talking about shipping millions of batteries, but that won’t be till 2025 when their Malaysia plant goes online.

The said on the call their “rebuilt their management team”. They said they will clearly move from smartphones into PCs. They keep saying “demand has been so strong” but this is for samples. Overall this company seems like a total pie in the sky joke!

Nu Holdings NU - earnings review
I’m passing on this one, my notes are that I’m not sure of their competitive advantage or moat. They provide zero guidance, and on the call they are not providing constant currency calculations but would be a good idea. I don’t like their opaque loans business. They were getting tons of questions on loans in the Q&A that I didn’t understand.

I was also recently in DLocal DLO and got kind of blindsided by the currency risk in Argentina and Nigeria. South American businesses are generally not my cup of tea. I see why people are interested though, the growth rate is impressive. If things are up and up on the loans, this could be a big winner.

Aspen Aerogels (ASPN) - earnings review
They provide aerogel insulation products, thermal barriers for batteries which reduce corrosion. Cons are negative EBITDA, 23% gross margin, also an opaque product for me, I don’t understand this business well enough. The growth rate is just not high enough to be really interested here.

Shift4 (FOUR) - earnings review
They take payments at stadiums and other large venues. Not to thrilled to see acquisitions like Finaro and Appetize, and the growth rate is not high enough to be really interested. I’m concerned with acquisitions they may end up with Frankenstein product akin to Olo, Bill, or Lightspeed.


Concluding, the other companies and top holdings I own are pretty well covered by the board so will leave further analysis until they report earnings soon in February, and I’ll have some more insights.

I’m planning to look up more defense related growth companies in the coming months. I believe the recent global conflicts provide a massive impetus to these businesses that the market may not have accounted for.

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Following up on my Amprius post because I realize I mentioned what I like about the company without some of risks which include,

  • This is a company with 75 employees and 3M in revenue
  • Gross margin is -150%
  • The new production facility will cost 20-30M to build

The company has 50M of cash on hand and 0 debt, so they need to scale up soon or otherwise this company will be a bust. From my understanding, the new Colorado factory will come online partially as they are building it. This means the full 20-30M does not need to be fully spent before getting back revenue.

On the gross margin, it makes sense to me it would be so negative right now as they are only reaching mass scaling right now.

What I will be looking for in the next quarter is revenue higher sequentially and progress on the Colorado plant. If revenue is not significantly higher than the 3M in this current quarter, I will be reevaluating the company.

To be clear this is not a typical Saul stock, or at least not yet. I believe it has the potential to be a Saul stock if they can reach their scaling targets. This is a risky company and a microcap so it’s likely to be a high variance, and it’s lost over 50% of it’s value since IPO.

The potential here is if they can reach their scaling targets, and demand is as large as they say from diversified customers, that the risk/reward is appealing on this company. Definitely would recommend anybody do their own research on this one, and open to any more information about the risks of this company.

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This risk analysis plus the fact that you have only a 0.5% position…is very appreciated. One thing I’ve always loved about Saul’s board is that we’re actually trying to help each other do this investing thing long term. This isn’t Wallstreetbets. We’re trying to build portfolios that will last. Kudos to you for not making too large a bet or being too enthusiastic about this tiny company. Kudos especially for highlighting what I feel are very significant risks.

Bear

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