Zen Mind. Beginner Mind.
This month my portfolio ended with the following allocations,
Hims & Hers Health (HIMS) - 17.6%
AppLovin (APP) - 17.1%
TransMedics (TMDX) - 16.1%
Astera Labs (ALAB) - 15.7%
Nvidia (NVDA) - 9.6%
Powell Industries (POWL) - 7.2%
ADMA Biologics (ADMA) - 7.1%
Reddit (RDDT) - 5.6%
Micron (MU) - 3.2%
Harrow Inc (HROW) - 1.0%
It was a strong month for results with AppLovin up 41%, Powell up 34%, and Astera Labs up 24%. My top four confidence positions of HIMS, APP, TMDX, and ALAB were all competing for the top allocation. I trimmed APP as it went up above the $120 level as it seemed to make some sense to take some profits as the company rose above 20% of my portfolio. NVDA I trimmed some because I like the opportunities I’m seeing elsewhere as having higher potential returns. I could easily see NVDA being a 10T company five years from now, but I see some of the smaller companies I’m invested in currently having the potential to double or triple more easily.
Additionally, it was a fruitful month for finding new positions that I am enthusiastic about with the addition of RDDT, MU, and HROW. I also held positions in Nu Bank (NU), Argan (AGX), and Sow Good (SOWG) during the month which I’ll detail below why I exited.
Top of mind this month is the importance of momentum in businesses and the importance of selling when the inertia of a business changes for the worse. Some prime examples are companies which were top confidence positions which now trade much lower, ELF at $109, CELH at $31, and SMCI at $416.
The earnings reports of these companies gave a ton of clues. ELF spent their last two calls trying to explain their guidance, Celsius spent their previous calls talking about inventories, and SuperMicro was talking about supply blockages. In contrast, ADMA Biologics reported they got a 20% yield enhancement for their main product from a AI system. AppLovin said they will enter web and the CTV space with initial results that vastly exceeded management’s expectations. Powell said their gross margin is going to keep going up because demand is so high they can be selective about projects.
One thing I demand of the companies in my portfolio is that the last earnings report should be inspiring and re-reads of the earnings call should be giving me additional confidence. If it’s a report I like then usually re-reading the report makes me want to buy more of the company, and if it’s just tepid I’m likely to trim or sell. I’ll try and do a read of the earnings report shortly after the company reports, mid earnings season, and sometimes once more before they report again. What’s so surprising about this process is nearly every report I re-read has significant parts I missed on the first pass. I believe this is partly due to the trading frenzy around earnings reports where a company which rises after a report makes the investor read the report with rose tinted glassed on, and a stock that is down after reporting causes the investor to read from a pessimistic perspective. However, reading the report again mid earnings season doesn’t contain this element of surprise and price change, allowing for a more logical and balanced read through.
Reviewing the companies I own,
Hims & Hers Health (HIMS) - 17.6%
HIMS gave an incredible guide which at the high end of the spectrum would put them at 70% yoy revenue growth. Additionally, they are already profitable and growing their user base in rapid fashion. The brand seems to be picking up in the marketplace. The company was barely in half the States yet for weight loss this past quarter and they will soon be live in 50 states for weight loss treatments. An edge I feel there is in this investment is how much the market misunderstands the weight loss category in that HIMS can offer a vast variety of different products in different form factors. The market seems to trade purely on GLP-1 concerns which I am not too concerned with as the demand GLPs is huge. I’d be surprised if Novartis and Lilly can keep up with demand, and even if they can I do not see it as much of a risk for HIMS. The stock seems attractive to me at any price under $20.
AppLovin (APP) - 17.1%
AppLovin had been a laggard on my portfolio for nearly six months but it finally got re-evaluated by the market on the numbers they are putting up. Had a few different posts in this thread detailing how AppLovin compares to SaaS companies. Not only has the company repurchased tons of shares reducing the float of the outstanding shares by over 10%, including paying out stock compensation. The company plans to use earnings to pay for stock based comp through share buybacks. Additionally, the company is generating over 500M in EBITDA per quarter and this trend appears to keep going up. The company put their games side of the business on hold, and by cutting off that marketing it drove EBITDA even higher.
TransMedics (TMDX) - 16.1%
Something I discovered recently about Transmedics was that I originally understood their business model completely differently. The process of organ donation is complex and there’s a lot to learn which how the system works. For example, one shocking statistic is that pancreas organ donations are the most common kind, and Transmedics hasn’t even entered this market yet. They did something non-intuitive to start with their business models which was to go after the toughest to preserve markets of liver, heart and lung. The pancreas solution is in the works and will expand their TAM quite a bit. I know there’s a counter bearish case that pancreas can thrive under cold storage or meaning on ice. However, even if TransMedics takes just 5-10% of this market to provide a better solution for the more difficult cases, it would add a ton of procedure volume. The company’s logistic network seems to be expanding well, and the CFO sounds like a hawk for optimizing every aspect of it.
Astera Labs (ALAB) - 15.7%
There’s a long thread about Astera here where there is a good debate about the company and it’s prospects. I am a believer that this company is at the absolute forefront of advanced AI hardware design, and enabling quite a lot of interesting solutions for hyperscalers and other large AI players.
Obviously the market is wondering how their solutions will work with Nvidia’s Blackwell as it appears like Astera will have more content in B100/B200 than in NVLink 72 which is basically 36 B100’s or B200’s in a rack. From what I understand half of “Blackwell sales” will be for the individual B100/200s and the other 50% will be for the racks of NVLink 72 Blackwell.
From everything the company has been saying they are seeing enormous demand from their customers. The company is only 250 people currently, and their next biggest competitor Marvell tried to buy them once. Marvell is 10x the size of Astera, and Broadcom which is the biggest player in the space is over 100x of Astera. It’s clear the market for these types of solutions is seeing incredible demand. Astera describes it as the hyperscalers tell them what to build. They have a software driven approach which has better testing for hardware than most any other system.
Nvidia (NVDA) - 9.6%
I am still quite bullish on Nvidia but I have been liking the opportunities in other companies more this month where the risk may be higher but the reward also greater. With the market cap at 3T already, I don’t believe it can double in the near term but maybe over the period of a year or two. Everybody is knocking on their door to get their product. It seems customers are sometimes begging to get their “allocation” of GPUs, and these are often other high profile CEOs. They seem so far ahead of the competition, but at the same time it’s hard to predict who could disrupt them. If anything this GPT o1 model has supposedly the intelligence of a Phd level student, so soon asking hardware design questions to an AI will be a possibility.
Powell Industries (POWL) - 7.2%
Powell has been on a really good run this month as I believe the market may be catching up to it’s impressive valuation along with strong growth. Jensen from Nvidia has called AI the next industrial revolution and all of these data centers consume power. Powell is in the business of building power stations and they are getting more work inside of the data centers as they say. Their backlog and profitability are impressive, and I’m looking to see if they can keep producing results. Powell presented at a conference in the Midwest which I had a writeup on.
ADMA Biologics (ADMA) - 7.1%
ADMA Biologics business has been coming along nicely the last two quarters. They discovered a yield enhancement for plasma collection making it 20% more efficient. It seems like they are able to significantly beat the estimates the street is putting up for them and I’m likely to continue holding while there is momentum in the business. I do somewhat question the TAM of this business with the astronomical price they can charge for the product and the low number of potential patients. I’ve mentioned that I passed on this company before because of questioning their ability to innovate, however I’m coming around more to the perspective they can keep innovating on the yield and compounds being made. There was a conference ADMA was at recently where I wrote about what they presented there.
Reddit (RDDT) - 5.6%
There’s a thread here discussing Reddit’s prospects. I’m a daily user of Reddit so this was a no brainer to see if this company is worth investing in. When the company was going public the growth was only 20% year over year, so I wrote off any further investigation completely. I’d also heard their ARPU per user is very low and they are not monetizing effectively.
It really seems to be in these first two quarters as a public company are they making a strong case for investing in. Revenue is growing 54% yoy which is unheard of for a social media company.
However, they do clarify this is not a typical social media in that is centered around communities and content, plus relying on moderators. It’s a somewhat more complex ecosystem than most social media as well with there being a power dynamic between the moderators and executives at the company. In fact, the CEO did something back on this platform which sounds completely insane in retrospect. In 2016 he was going into political subreddits and changing comments that were against him to be discussing political candidates. Obviously users and moderators wondering why their comments were being edited, and it started a war between u/spez, the CEO, and the moderators. I am now buying that this was in the past as the CEO explained this was meant to be joking trolling on Reddit before it was a public company and they’ve grown since then.
I like this CEO’s approach quite a lot which was in contrast to my initial impressions of him. First he recognizes this is one of the few places on the internet where real social interactions are taking place that are between humans. This data is extremely valuable for machine learning and AI to train on. Simultaneously the CEO recognizes the right of the users to privacy and he doesn’t want the company to show “creepy” ads that other social media companies show.
Micron (MU) - 3.2%
I got into Micron after this last earnings report and I wrote up some thoughts about them after their last earnings. Demand for their product seems huge and they are sold out until next year. Profitability is trending upwards and I believe they will be crossing 10B in quarterly revenue soon with expanded profitability.
Harrow Inc (HROW) - 1.0%
I started a new position in Harrow which has a series of drugs for conditions related to eyes. They have a new dry eye solution which is supposed to be the best on the market that is now entering a refill cycle. They also previously acquired a bunch of exclusive rights for compounds from Navartis back in 2023. The story sounds incredibly strong from their last earnings, and the huge sequential jump up in revenue is attributable to this impressive story. I’m still ramping up quite a bit on this company and may do a write up on them if it continues to look promising.
Looking at the companies I owned and then sold,
Sow Good (SOWG)
They are a candy maker specializing in freeze dried candies, and the founder used to have a pets based business selling freeze dried pet food which they sold. The numbers and profitability of this business are stunning wether you look at it sequentially or year over year. I also feel the company has a compelling story, of getting into this new niche of candy. Most of their sales are to retail companies like Cracker Barrel for example, but you can order direct from them which I think only makes up 2% of sales.
I actually ordered some of the candies online to see how they are. Here’s a picture of what I got from their website,
The taste was quite nice and they are crunchy. I’m not a huge sweet tooth myself and I’m not sure I would order them again although I liked them. One concern was all of the bags had for ingredients the food coloring dies like Yellow 5, and Red 40. Somehow I was under the impression it was more of a healthy candy, but I do not believe so. Nothing wrong with that for investing, but it’s just not what I was expecting.
Aside from that there were a few additional concerns that came up when looking into it. Their bid/ask spread is enormous and volume is tiny. There’s barely any trading on the company and sometimes they bid/ask can vary up to nearly a $1 when the company is a ~$12 stock. I’m not really clear why there is so little trading. Additionally, the CFO recently left and there’s an interim CFO, complicated by the fact that it’s a husband and wife as the cofounders. With the company doing so incredibly well on financials, I cannot for the life of me think of why a CFO would be leaving. Lastly, their Q3 is likely going to be weaker because they stopped shipments for a heating concern.
Nu Bank (NU)
David Valez seems like an amazing CEO and I like this story a lot. I started a position in this one and then later sold this month. At the top of my list of concerns is that NU was incorporated in the Caymen Islands. I was surprised to see that in some app the headquarters is simply listed as, “George Town, George Town”. To be clear the “operational headquarters” is in Brazil but I’m kind of confused why the company is incorporated in the Caymans. Asking AI what other large NYSE or Nasdaq companies are incorporated in the Cayman Islands and it’s only Chinese companies coming back.
Secondly, I learned that Nu does not have a full banking license in Brazil but they do have a financial institution license (Financeira) and a payment institution license. They are an “S-3” financial institution but could be reclassified as an “S-1” if they got the license. To be honest, I don’t understand half of what that means but it doesn’t inspire confidence they don’t have the banking license just in case they need it.
My other qualm with the company is that their data is wrong across many different third party data providers for their financials and I do not have confidence they are doing anything about it. Both Koyfin and Finchat show the same completely wrong numbers for revenue and gross margin, and Yahoo shows a different set of incorrect numbers. Everywhere you look there’s different numbers and I even wrote to Koyfin asking about the issue. I wasn’t the first person who wrote in either after I saw the threads list they maintain. Koyfin says it’s an issue with S&P Capital Markets IQ providing bad data. My question is then why is NU not working with the data provider to get this corrected? It’s a 60B NYSE company and I would like to see NU’s investor relations do something about it.
Argan (AGX)
This is a really interesting industrial play in the energy sector. The do renewables and power plant projects as an EPC. It has the exact type of financials I’m looking for with the exception of gross margin which is 13% and a bit too low for my liking. They are a 1.4B company with 400M in cash and a 1B+ backlog. Revenue growth is 61% yoy and the valuation does not seem too high. It’s a situation where I may want to see more gross margins or more evidence of innovation. I think this company could be a great investment.
Companies which I researched included,
Credo - (CRDO)
They are a competitor to Astera Labs and recently public as well. From what I gathered on basically every metric Astera looks better and has a much stronger narrative as well. I’d have to want to see some really impressive results to want to invest from here on out. When asked about Astera on their call, I didn’t sense they were too confident about their space in the hardware landscape.
Shift Four - (FOUR)
The company mentioned four separate acquisitions going on in the opening paragraphs of the prepared remarks. They sound like an acquisition machine, and I am seriously wondering why organic growth is not enough to suffice if they had a superior solution. I’m worried this is Lightspeed all over again, building a Frankenstein amalgamation of companies.
ACMR Research - (ACMR)
ACMR certainly looks impressive from a growth and profitability perspective, but I only realized recently that this company does 97% of sales to China. They are an American based company though, but the over involvement with China is enough for me to be a skeptic. On the other hand they say they do expect China to be 50/50 of sales with other regions and that could make this company a whole lot more interesting. I’d probably wait a year at least to see if they can keep that promise of diversifying the business line to other geographies.
Robinhood - (HOOD)
Robinhood is on an impressive growth trajectory. My biggest concern is their business goes boom or bust depending on the stocks, options, and crypto market. I’m just thinking that if I took a position here it would almost add leverage on the downside of my portfolio because if stocks are doing poorly, Robinhood is also likely be suffering as a business, and providing anti-diversification.
Concluding, this was a big month of change for my portfolio. I’m pleased to have what I perceive to be a strong lineup of companies going into next earnings season. This upcoming month I’ll plan to look into my newer positions some more especially Harrow and Micron.