Zen mind. Beginner mind.
This month my portfolio stands at,
Supermicro (SMCI) - 17.9%
Nvidia (NVDA) - 17.5%
TransMedics (TMDX) - 16.8%
Hims & Hers Health (HIMS) - 15.4%
AppLovin (APP) - 15.3%
Elf Cosmetics (ELF) - 15.1%
Powell Industries (POWL) - 2.2%
The main changes to my portfolio are to sell Nextracker (NXT) and to start a new small position in Powell Industries (POWL). I’ve made relatively small adjustments otherwise, while Transmedics has drifted up relative in my portfolio and Supermicro has trended down.
One investing topic I was interested this month was working backwards on a stock screen to have all of my seven companies included in the stock screen with as few names as possible returning in the screen. The screen I came up with in Koyfin is: US based, Nasdaq or NYSE only, greater than 40% revenue growth last quarter, greater than 10M net income quarter, greater than 10M EBITDA last quarter, and net income margin greater than 4%. The screen only returns 30-40 companies roughly, but it includes all 7 of my holdings.
The revenue growth part of the screen is an obvious one for finding growth, but lately I’ve been interested to invest in companies showing bottom line profitability. The 10M of both net income and EBITDA is a low bar, but it’s to make sure the company has some income and that the income is not a result of a tax benefit or one-off event. The benefit of the screen is during this new round of earnings season I can see if there’s any new companies getting on to the list for the criteria I typically want, and then see if the narrative for those companies is compelling.
Reviewing the companies I own,
Supermicro (SMCI) - 17.9%
There has not been a whole lot of news on Supermicro besides them not pre-announcing earnings but the stock price has gotten hammered. I had some thoughts on why Meta open sourcing Llama 3 could be good for Supermicro. Recently the company mentioned they are creating a factory in Japan and Japan is a big market for them. Otherwise I’m mainly waiting for earnings and would be surprised if it is a bad report. The reason being on the previous quarter they mentioned a lot of supply landed on the last week of the previous quarter which hurt that quarter’s results but should help with Q2 calendar year results.
Nvidia (NVDA) - 17.5%
I am in waiting mode on Nvidia to see how the report comes in later this month. There is a smallish concern of mine that Nvidia could come under the regulators eyes for anti-trust. This seems to be materializing but I’m not sure how serious the investigation will be.
TransMedics (TMDX) - 16.8%
TransMedics put up some solid numbers and I like the narrative quite a lot from the earnings. I wrote up my thoughts on the quarter in this post. There was a really interesting report and thread on Transmedics earlier in the month where I had some thoughts. I learned that Kidney makes up the majority of all organ transplants, and TransMedics will get into that field soon. They went after the more difficult organ transplants first though, but this could expand their TAM, although I’m still have trouble understanding the kidney transplant market landscape.
Hims & Hers Health (HIMS) - 15.4%
HIMS has seen a lot of volatility recently with multiple days either up 10%+ or down 10%+. The market seems to have trouble figuring the company out, or it may be just momentum traders going in and out as I saw they were at the top of the IBD 50 list for a bit. I am confident in this company’s chances to outperform this earnings.
There was a short report on HIMS which didn’t seem serious to me, here was my thoughts on that report. However, HIMS did announce they are talking with the FTC now about some parts of this report. At first this was alarming but I believe HIMS is in compliance with regulations and it’s good to get these regulatory inquiries out of the way while the company is small.
AppLovin (APP) - 15.3%
I have no updates since mid June when I was reviewing Apple’s changes to the AdTech space. AppLovin is probably the biggest wild card for earnings of all the companies I own. I’m expecting to blow away all estimates this quarter, and the company looks under priced to me. Will be re-evaluating the company if this quarter is anything less than a major blowout.
Elf Cosmetics (ELF) - 15.1%
I am good with keeping a high allocation towards ELF, although the it’s drifted to number five on my portfolio with the price dragging. The CFO’s guide last quarter seemed insanely low, and I expect them to beat the guide significantly. My only concern is their supply chain is from China and that may be a risk with geopolitical concerns along with talks of tariffs. Since ELF is the low priced provider in the space I think they could bump prices to handle tariffs, but it is not an ideal situation.
Powell Industries (POWL) - 2.2%
I’m planning to do a more in depth deep dive on Powell in another dedicated post their earnings absolutely blew away expectations. I’d written about this company last month, and here’s what I said,
They are an electrical energy components manufacturer and build substations, electrical houses, circuit breakers, and communication systems. You wouldn’t expect a company of this type to be growing revenue at 49% yoy but they are. The P/E is 20, and part of the catalyst for the growth is more work with data centers. However, they are still self admittedly are having trouble getting business “inside the data centers”. While they are gaining traction and building relationships, there are still a few competitors who are the more go to solutions within data centers. They sound like they are dedicated to growing and innovating, so let’s see if the growth can continue.
I wasn’t expecting them to come in with such a big result do soon, but this business is firing on all cylinders. Analysts had projected Adj EPS of 2.16, and it came in at 3.79. Revenue came at 288M or up 50% yoy and almost all sectors did well. This company is a ~2B market cap company and the current run rate of EPS for the last quarter would give them a P/E of 12.5, while their TTM P/E is listed as 14.3 on Yahoo. Demand is broad based across all their industries including data center, petrochemical and industrial. They are investing more in R&D, and mention competitors have dropped out over the last ~10 years. Gross margin is bumping up too.
Companies I sold,
Nextracker (NXT)
This was a disappointing quarter in my eyes, and I outlined why here. It was my first earnings to hold Nextracker through and I feel the narrative has changed for them dramatically between the two earnings reports. Including hiring a new CFO who gave zero comments in the commentary and a CEO who thinks it’s a good idea to put all the commentary for earnings reports into the shareholder letter and now only do a Q&A session.
Companies I researched,
Celestica (CLS)
This company could be described as a Canadian Supermicro. They are smaller and have a legacy business but have some nice contracts with some hyper scalers who are buying their compute solutions en masse. Full year guide on revenue was raised from 9.1B to 9.45B and EPS from 3.30 to 3.62, but an addition was made that their ATS division or legacy industrial business will be down single digits growth when it was previously projected flat.
Their AI server business or advanced compute is driving the company, but it’s still not showing up in their overall results enough to really interest me with 23% revenue growth. Two hyperscalers are their biggest customers at 32% and 12% of sales. Hardware Platform Solutions were up 94% year over year to 686M which includes the AI hardware. I still have them at the top of my watchlist and I could be convinced to get in on subsequent reports.
Gorilla Technology Group (GRRR)
This is a tiny 30M market cap company that claims to have a backlog close to 1B. It’s 200 employees and London based which went public via “de-SPAC”. They do video intelligence, edge AI data analytics. They seem to engage internationally a lot with regions such as Egypt. A couple red flags I ran into is they seem to have reported a earnings since their April 4 earnings which were impressive, but I can find no record of it, either on Koyfin or their investor relations. The CEO on the April 4 calls swears the backlog is real, but he sounds like he’s trying to hard to convince investors. They also did a capital raise recently. This is too messy a story, but if this backlog is real it could be a big winner, it’s just hard to have any confidence on what is probably a convincing CEO.
Gambling dot com (GAMB)
They own a number of gambling related properties including RotoWire which was acquired in 2022. They have an affiliate business for referrals to gambling sites but they sound impacted by Google ad changes massively. They were complaining of Google being the “Supreme Court” of the internet which was a turn off to me as an investor. The affiliate business for gambling seems murky at best.
Taiwan Semiconductor Manufacturing (TSM)
TSM always reports early in the cycle and I was interested to see what they had to say with holding big positions in Supermicro and Nvidia. I thought Nvidia was TSM’s biggest customer but turns out Apple makes up 25% of revenue and Nvidia is 11%. For some reason I was under the impression that over half of TSM’s revenue was Nvidia. High performance computing was up 28% quarter over quarter to account for 52% of revenue, however there wasn’t enough overall growth to want to invest in TSM on it’s own right.
Silicon Motion Technology Corporation (SIMO)
They are memory supplier to Micron and Intel. Last quarter revenue was up 53% yoy, but down sequentially. Founded in 1995 in San Jose, they operate out of Hong Kong and Taiwan as well. Scrolling back from past years of data, previous years had higher revenue which gave me concern this is more of a recovery play.
Formula One (FWONK)
I’m fascinated Formula One is publicly traded but it’s in a really weird way this is a “tracker stock”, something I’d never heard of before. It operates as a subsidiary of Liberty Media but the stock price and earnings correlate exactly to the individual Formula One earnings. This was the strangest earnings transcript I’ve ever seen because the title of the transcript is “Atlanta Braves Holdings” and Atlanta Braves are also a tracking company (BATRA), but then they introduce themselves as welcome to Liberty Media’s earnings call. They also own SiriusXM group and Live Nation. I honestly thought I had printed out a complete nonsense gibberish earnings report that was a mistake in the transcript, because they seem to describe five companies all at once in non-sequiturs.
Broadcom (AVGO)
Revenue growth is impressive at 43% yoy for a company this big. They do networking, storage, broadband, wireless, industrial and enterprise software. Network switches the make are bought by both Dell and Supermicro for example and they have a lot of loyal customers who keep coming back to the big name in the industry. They bought VMWare for 61B in November 2023 and have 74B in debt right now. There’s just too much legacy business here to be interested but maybe the newer component part of the business picks up even more, let’s see.
First Solar (FSLR)
I ended up writing their earnings up in the Nextracker thread. This company seems to be predicting doomsday for the solar industry if the 45X regulations are not continuing, was not interested at all in the negativity expressed throughout the call.
Sphere Entertainment (SPHR)
They made the Las Vegas Sphere which seems to be a popular attraction. Revenue is picking up nicely now, but they have 1.4B of debt from the build of the stadium. They are a spin off of Madison Square Garden from April 2023. It’s their first year in operation, so a lot of unknowns.
Micron (MU)
Did a deep dive on this business here. Similar to other hardware companies I’m on the fence because of too much legacy business. The price has come way down on this company now though, so could be interested if it crashes more, or if they report good again on their September earnings date.
I’m now waiting for next week when four of of my six top holdings will report: SMCI, APP, ELF, and HIMS.