Zen Mind. Beginner Mind.
My portfolio at the end of October looks like,
AppLovin (APP) - 19.6%
Astera Labs (ALAB) - 16.6%
Reddit (RDDT) - 15.2%
Hims & Hers Health (HIMS) - 14.9%
Castle Biosciences (CSTL) - 8.4%
Micron (MU) - 6.5%
Nvidia (NVDA) - 6.0%
Powell Industries (POWL) - 5.7%
Harrow Inc (HROW) - 4.7%
EverQuote (EVER) - 2.4%
Portfolio returns YTD are 78%, and next year I am planning to track month to month results as many of the other monthly summaries do.
I thought to explain the phrase “Zen Mind. Beginner Mind.” that I put at the beginning of each monthly summary. It comes from a book on Zen by Shunryu Suzuki. He says that in the beginner’s mind there are many possibilities but in the expert’s there a few. It does not mean a closed mind, but a ready and empty mind. “If you discriminate too much, you limit yourself. If you are too demanding or too greedy, your mind is not rich and self sufficient.” In the beginner’s mind there is no thought, “I have attained something”. “When we have no thought of achievement, no thought of self, we are true beginners”.
I believe this mindset carries over extremely well to investing. Prior to 2022 my investing mindset was more rigid on investing almost entirely in software companies. This also meant I shut out so many possibilities in other industries simply because they were not technology companies. It has taken a lot of effort to be able to evaluate a company in any industry but the rewards have been worth it as I have been forced to adapt. I like to research a number of new companies each month, coming to them from a beginners perspective, looking to understand the business model and company in full.
This month’s portfolio changes including selling Transmedics a top conviction position and ADMA Biologics a medium conviction position. I added to Reddit, Castle Biosciences and Micron. I started new positions in Castle Biosciences (CSTL), Harrow (HROW) and EverQuote (EVER).
Transmedics had a shockingly poor revenue number which I expressed some thoughts on. Additionally, ADMA Biologics had their auditor resign, which is a red flag in my book.
I know many were probably discouraged by the Transmedics results since it was a popular company on this board. Stepping back for a moment we should consider that investing in high growth companies is high risk, high reward. It is more likely that a growth company is going to stumble at some point. That’s just part of the game, as sometimes companies rocket ship up like ROOT did today, or APP and ALAB going up to more than make up for any losers in the portfolio.
Reviewing companies I own,
AppLovin (APP) - 19.6%
Amazingly this company was $70 a share after their last earnings report where they went down 10% after reporting, but over the course of two and half months it has gone up to over $170 a share. I was wondering when the market was going to wake up to the opportunity in this company. You even had analysts asking two quarters ago, why the market does not give you the respect you deserve.
Just graphing this companies metrics compared to any other SaaS or software company and it is clear to see why it is rising now. Over half the company’s revenue goes straight to EBITDA, and their ad platform has an incredible 70%+ EBITDA margin. It’s market cap is now on par with The Trade Desk but it gets over double the revenue and more than three times the profitability. While the company is not as undervalued as it once was, I think it has room to run still. I’m looking forward to this earnings to see if their pilot programs in web and CTV are doing well.
Astera Labs (ALAB) - 16.6%
Astera announced their Scorpio product line which is their fourth product line. It shot the stock up 18% on the announcement and the stock has kept rallying since. The new product line will impact 2025 revenue. I did not do a ton of research on Astera these past months, but I am extremely confident on their prospects going into this next earnings. Looking at the price, they IPO’d just this year and got up to $90 a share at one point during peak AI hype. They haven’t missed a beat on any earnings, and I expect them to reach a new all time high soon.
Reddit (RDDT) - 15.2%
Reddit delivered results far better than I thought was even possible for them. I wrote up a thread about the earnings where most of their metrics are off the charts. I am most excited about the Reddit corpus being translated into other languages as these are new landing places for ads to be placed. The translated content also shows up in Google search results in those respective languages. They expect to have 30+ languages translated next year! With a cost of 1M to run all the data through LLMs per language, it is an incredible greenfield ROI prospect for them to take this initiative.
I was fortunate to have decided to promote Reddit to a top confidence position size the day of the earnings as Transmedics had its major disappointment. Reddit was one of those companies I would have liked a bigger position in anyways. While I believe the investing style of “buy what you know” does have some flaws, it is a nice tool to have in the toolbox when it is needed. In this case, I am daily user of Reddit and know the product in and out. That sometimes allows for a top conviction position to come about quicker.
Hims & Hers Health (HIMS) - 14.9%
I am expecting HIMS to absolutely crush expectations this report next week. They guided really big for this next quarter, and had a full quarter to sell GLP-1 medications. The company is advertising on TV for NFL games and I believe that marketing is likely to bring in many users.
The market manically trades of GLP-1 news which seems irrational. HIMS revenue is growing over 40% excluding all GLP sales so the company is not even dependent solely on that business line. HIMS has said they can sell Ozempic and Wegovy if the shortage ends, they are fine selling brand name, their own compounded semaglutide, in a variety of forms. Additionally, there are other GLP-1s which are becoming available generically soon that work similarly to Ozempic. The mania over GLP availability for this company’s stock price seems way overblown.
Castle Biosciences (CSTL) - 8.4%
The narrative for this company is incredible but the numbers are even more impressive. Last quarter had 87M (+74% yoy) in revenue, 8.9M of net income, yet the market cap is less than 1B somehow. They have 260M in cash and 25M in debt, so effectively the market cap is below 750M.
On the product side they’ve created new TAM with a psychological test, and a test for throat cancer. Their original business line was tests in dermatology which are still doing well. Their product results in less surgeries, because doctors can know how dangerous a growth is without needing to operate first.
As an aside, this last statement makes me wonder if Transmedics faces competition inadvertently from newer therapeutic drugs, or advanced testing which could determine if an organ transplant is really needed.
Micron (MU) - 6.5%
I reread Micron’s earnings recently and I am pretty impressed. The numbers are getting quite big for this company as they are forecasting for 8.7B in revenue next quarter. The company’s own market cap is 110B which doesn’t sound too expensive for a company with a quarterly revenue run-rate likely to be above 10B soon, with increasing profitability.
Micron potentially faces stiff competition from two other large players, both of which I believe are South Korean companies. However, Micron’s solutions are more energy efficient by a significant amount, meaning they are a preferred solution. It seems public policy lately leans towards rewards for buying American, a trend Micron can benefit from. Additionally, Micron is scaling up big with more factories and foundries. While CapEx is rising, somehow profitability is still outpacing spend. They are sold out for some products for over a year into the future, with seemingly endless demand for their products. Traditional compute is up too, along with what people predict will be a new super-cycle for AI enabled phones and PCs - both of which require more memory, Micron’s specialty product.
Nvidia (NVDA) - 6.0%
Even though Nvidia is a much lower allocation than previous months, my confidence has not wained too much. It’s pretty rare for my portfolio to have any large caps, let alone the biggest market cap company on the market. Basically it comes down to I like the risk/reward scenarios for some smaller companies better.
I do believe Nvidia has a strong possibility to reach a 10T market cap in the near future, however I noted in one thread I am not sure there is a clear path to being a 30T in the coming years. A lot of my other companies I can envision being a 3-bagger or a 10-bagger a bit easier.
Despite that I still want an allocation to Nvidia as I believe has a path to be a straight forward clear winner from AI. They are the absolute dominant winner of this AI cycle, and they will become like the IBM from the 1970s, and the AWS from the 2010s going forward.
Powell Industries (POWL) - 5.7%
Powell has been an a tremendous run up price wise going from about $150 to $260 in about a month and a half. That steady daily rise inclined me to trim a bit, and I feel a rise in the company was warranted, but 60% in a month and half seems excessive. I like to take a little bit of profits off the table when a scenario like this happens. Especially with POWL because a large part of my thesis is the company is undervalued. They are growing revenue 50%+ yoy and will be a clear winner from the AI cycle. They built power stations, and critical components for electrical equipment. Such equipment is also required by data centers, and Powell’s backlog is large with optionality on which projects they take on.
Harrow Inc (HROW) - 4.7%
This company is taking over the market for eye medications. I wrote up my findings about this company in this thread. Their medications are much more effective than competitors for common eye conditions. Additionally, they have their own compounding facility, and they created a new compound which is a sublingual sedative. I believe this product has the potential to completely disrupt the IV/opioid market, the product is in massive demand. The product is so impressive, that Harrow spun up a new company which will sell this product, and they are close to a majority share holder.
EverQuote (EVER) - 2.4%
EverQuote is a new position which is low confidence. I wrote up my thoughts on EverQuote in this thread. I am a bit incredulous by what this company is guiding for. Previously they guided the last quarter to come in at 100-105M of revenue, but it landed at 117M. Then they guided for 137-143M of revenue which would be over 150%+ yoy.
As of today I added to my position as it was closer to a 1% position before. I’m encouraged by the results ROOT put up yesterday as EverQuote sells leads to Root. It seems like a good foreboding that Root is delivering and a partner to EverQuote. On the same day EverQuote was down 5%+ so they market does not see any connection. This could be one and done after their earnings if they do not get above 143M in revenue. I’d really like to see them beat the top end of their guide to gain more confidence here. Also I am really interested to see what they can deliver on guidance for the next quarter.
Reviewing companies I sold,
Transmedics (TMDX)
The revenue number disappointment was just too large to want to continue holding a position. After seeing the headline revenue number I was determined to at least sell half my position, until I heard the earnings call. I really did not get enough reassurance from the management this is a temporary issue resolving next quarter. This business seems a lot more unpredictable than I was expecting. It just does not make sense to me that summer vacation schedules are causing them to miss some 25M or so in revenue. I closed my full position the day after earnings.
ADMA Biologics (ADMA)
It was a confluence of factors impacting me to sell ADMA. The news item which led me to sell was that their auditor was resigning. While they did not mention any specific issue, this type of event is highly concerning. This is coupled with a new CFO and a product which sells at enormous marks up on the market. For example, the company mentioned they could get to 8,000 ASCENIV patients in the coming years. I was thinking to myself isn’t this their blockbuster drug but it is a tiny number of patients. Maybe it sounds simplistic but I think a high mark up on prices when the underlying compound is cheap, could allow for some fudging of numbers. It doesn’t make a lot of sense to me that an auditor is resigning from a growing company like this, because it is even more business to come their way in coming years. This is coupled with my own recent experience with Supermicro and watching that play out thankfully from the sidelines.
Companies I researched this month were,
Byrna Technologies (BYRN)
They sell a non-lethal CO2 weapon and is surprisingly a possible competitor to AXON. It is still a small company with a sub 500M market cap. What has me potentially interested is their revenue growth goes like 7.1M → 15.6M → 16.7M → 20.3M and the last quarter had 2.1M of net income. The company secured a 10,000 launcher order from the Cordoba Provincial Police in Argentina. Direct to customer sales is 70%. The company advertises through almost every right leaning podcast or talk show host which has me concerned revenue could drop off after the election, depending how it plays out.
Dave Inc (DAVE)
They are a company providing short term cash advances to customers and have a digital bank. Revenue grew 31% yoy and the company financials look quite good for a ~500 market cap company. This company debuted at $400 a share and now sits at $40. Revenue is now much higher than it was when priced at $400, and so is profitability. I’m not too enthusiastic about the company or product, but there could be a lot of value here.
Corcept Therapeutics (CORT)
Revenue is up 39% yoy. They make drugs which deal with cortisol or stress hormones, hence the symbol CORT. EBITDA and net income were not trending up as much as revenue is recently which seemed like a yellow flag. The company has 164M of revenue but a 5B market cap, so it does not seem that cheap.
Perimeter Solutions (PRM)
They are a global provider of firefighting products. 2B market cap with just 219 employees. Even though they put up some big numbers the revenue is all over the map, 44M → 76M → 143M → 60M → 59M → 127M. While there is a lot of seasonality for the product especially during fire season, there is so much variability when it comes to this business. A lot depends how bad the forrest fires are each year.
Atlas Energy Solutions (AESI)
They have a big jump up in revenue going from 193M on the prior quarter to 288M. They are a provider of logistic services and products for “frac sand” which is critical in the process of fracking. Founded in only 2017 they’ve taken a pretty big foothold in the market. What cut my research short was their jump in revenue is from an acquisition. I would first want to see them process integrating that new company with improving profitability to warrant another look.
Seagate Technology (STX)
Revenue is big at 2.17B and that is up 49% yoy. They are an old school player in data storage solutions and hard drives. They build storage systems for enterprises. While most people have written off this type of business as a commodity business, its only competitor that remains is Western Digital which is also growing. The products are still essential to building out data centers because data still ends up on these cheap forms of disk. The company has a surprisingly high amount of debt at 5.7B, it is probably too much of a dinosaur company to be interested, but if revenue keeps growing I will take another look.
Harmonic Inc (HLIT)
This company guided for 175M-190M of revenue and landed at 196M (+54%), additionally the earned 43M of adj EBITDA for a company that is 1.3B in market cap. They company just reported a few days ago and was down 30% although I am still a bit baffled as to why. I thought maybe it was a weak guide, but the guide was still sequentially up. Their primary customers are two cable companies, one being Comcast. I understand they sell some components or software to companies, but it wasn’t really worth a deep dive on their tech yet.
Concentrix Corporation (CNXC)
Revenue is growing 46% yoy but it has been mostly flat sequentially this year. The market cap is is only 2.9B and they are getting a quarterly run rate of revenue of 2.38B with EBITDA of 366M. They do consulting for companies helping them to get ready for AI and other technology transitions. Somehow the company has 5.8B of debt, almost twice their market cap and I cut my research short because of that.
Symbotic (SYM)
They build and operate warehouse systems using AI and robotics. The company is still founder led by Rick Cohen. Customers include Walmart and Target. They are a 16B market cap growing 47%. They gave a weak guide though, and sounds like there is some turmoil with suppliers and contractors. There is an enormous backlog for this company too.
Next week I am expecting be really busy with earnings as I have ALAB, HIMS, EVER, and CSTL all reporting on the same day! That is followed by APP reporting later in the week. Stay tuned for updates on those companies.