Before we dive in, I want to extend a colossal thank you to everyone who participated in last week’s survey. If you didn’t get a chance to share your thoughts, you can do so here (average time to complete is 4.2 minutes).

The people get what the people want, and, based on initial feedback, the community overwhelmingly prefers Market Movers and Stock Reports. So, in an effort to appease everyone, I’ve combined portions of both content styles into one — the background, analysis, and outlook of long-form reports with the trend-spotting, topical nature of Market Movers.

If this is your first time with us, don’t forget to subscribe here. If you enjoy today’s issue, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Plug Power , a well-known name in the hydrogen space, could use a jolt. Shares closed at $9.67 on Wednesday, down 17.5% since last Friday, 22% YTD, and 69% from its 52-week high of $31.56.

Ultimately, a company’s share price is only as valuable as the investors that place value in it. What’s driving investors to lose confidence in PLUG?

Before we can address that, let’s quickly summarize Plug’s business.  

What Does Plug Power Do?

Plug Power is a leading provider of hydrogen fuel cell systems, focusing primarily on the material handling (e.g., forklifts) and electric vehicle markets. Their business strategy revolves around the development, manufacture, and deployment of hydrogen fuel cell systems as a clean and efficient alternative to traditional combustion engines and batteries. 

Here’s a four-point summary of their business strategy:

1. Expanding market presence in material handling: Plug Power has a strong presence in the material handling industry, with its GenDrive fuel cell systems powering forklifts and other warehouse equipment. Some of their major customers include Amazon, Walmart, and New Fortress Energy.

2. Diversifying into new markets: Plug Power aims to expand into new markets where hydrogen fuel cell technology can be a viable solution. For instance, they have ventured into the on-road electric vehicle market with their ProGen fuel cell engines, targeting delivery vans, buses, and trucks. Additionally, they have explored applications in stationary power, such as backup power systems for data centers and telecommunications.

3. Vertical integration and strategic partnerships: Plug Power seeks to vertically integrate its operations to control costs and improve efficiency. They have acquired several companies, like United Hydrogen and Giner ELX, to strengthen their hydrogen generation, liquefaction, and distribution capabilities. Additionally, they have formed strategic partnerships with companies like Renault, SK Group, and Airbus to expand their global reach and tap into new markets.

4. Investing in research and development: Considering hydrogen technology is still in its early stages, Plug Power continues to invest in R&D to enhance the performance and efficiency of its fuel cell systems, reduce costs, and develop new products for emerging applications.

How Does Plug Power Make Money?

Whenever I look into a company for the first time, I like to begin by figuring out how they make money. To me, it’s the easiest way to form an initial perspective and understanding of a business. In this case, Plug Power makes hydrogen fuel cell systems, which are used for things like forklifts, delivery vehicles, and stationary power generation. They provide these solutions to customers across a variety of industries, such as retail, manufacturing, and distribution centers.

In addition to selling fuel cell systems, Plug Power also generates revenue from associated services, such as maintenance and hydrogen supply for their fuel cell products. These services are often included in the initial sales contracts and contribute to the company's overall revenue stream. (But, as we’ll touch on shortly, these contracts aren’t exactly profitable.)

Perhaps more importantly, Plug Power has its eyes fixed on expanding its business by investing in green hydrogen production facilities and developing new products like electrolyzer platforms and on-road vehicles through partnerships and joint ventures. Essentially, the company wants to cover the entire hydrogen value chain, ranging from production, storage, and delivery to energy distribution — for instance, electrolyzers that create hydrogen, liquifiers to convert that hydrogen into liquid fuel, and tankers for storage. 

Why Is Plug Power Stock Going Down?

Skeptics can make a convincing case against Plug. 

• As it stands today, not all hydrogen is “green.” Quite the opposite. Most of the world’s hydrogen production (about 95%) still relies on natural gas and generates greenhouse gas emissions. Why? While more environmentally friendly, green hydrogen still isn’t as commercially viable.  

• Although Plug Power was an early player in the space, its first-mover advantage is questionable due to the competitive nature of the energy space and lack of a competitive moat. For example, a simple Google search yields a list of 19 other recognized electrolyzer manufacturers. 

• On the company’s Q4 earnings call, CEO Andy Marsh made an enthusiastic prediction: “I believe, the end of 2023, no one will question Plug's ability to scale the hydrogen economy.” But growth often comes at the cost of cash, and Plug bears point to its sizable cash burn as a point of operational weakness. For reference, Plug operations burned through $358 million in FY21 and $829 million in FY22 (130% change, the bad kind of growth).

• Along the same lines, execution has been a problem, with management tending to overpromise and underdeliver. For FY22, management initially projected revenue of $900–$925 million, before revising that guidance in October to “5% to 10% lower.” Then Plug fell quite short of the marked-down revision, with revenue of $701 million.

Plug Power's recent earnings call highlighted their less-than-ideal performance — they chalked it up to new product hiccups, hydrogen plant delays, and macroeconomic factors causing hydrogen costs to skyrocket. However, despite the multitude of bumps in the road, the company remained confident that their 2022 efforts will tell a different story (see Marsh’s quote above). 

Plug is currently targeting $1.4 billion of revenue with 10% gross margins. That would be a remarkable improvement, considering gross margins were awful in FY22 (-22%). The company’s fuel cells are the only materially profitable segment — everything else is sold at a loss.

What’s driving the company’s expected margin improvements? Plug’s shareholder letter highlighted the catalysts:

• Commissioning green hydrogen facilities, with internal cost of production one-third of third-party vendor costs

• Scaling mature and new fuel cell product platforms 

• Scaling world-class manufacturing to create substantial operating leverage 

• Continuing reliability enhancements across deployed material handling fleet, which is expected to benefit both service and PPA (power purchase agreements)

• Realizing Inflation Reduction Act (IRA) benefits, which are expected to positively affect margins across businesses.

Naturally, it remains to be seen whether Plug can accomplish these feats. On that note, the company has some rather optimistic targets for the rest of the decade:

Plug Power Outlook

We’ve spoken at length about the government-backed clean energy push. It’d be naive of us to ignore such a robust, secular tailwind. Tax incentives and private investments will provide a much-needed boost and help bridge the gap to cost efficiency. With that in mind, Plug Power's outlook is generally positive, from a 30,000-foot, long-term perspective. The company has a strong foothold in the material handling market and is actively expanding its operations to become an end-to-end hydrogen solution. 

However, there are plenty of challenges to consider. The hydrogen fuel cell industry's growth is contingent on advancements in technology, infrastructure, and policy support. Plug Power will need to continue investing in R&D and forging strategic partnerships to address these challenges and maintain a competitive edge. At the same time, being prudent stewards of capital and optimizing margins will be critical to not only the company’s positioning but also survival. Something it hasn’t proven capable of quite yet.

PLUG is not a value stock — it’s a speculative bet on both hydrogen’s place in the clean energy economy as well as Plug’s role in that ecosystem. Frankly, management’s margin forecasts for the next several years seem way too aggressive, so don’t be shocked to see margins struggle to reach lofty expectations. 

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Last week, we dug into Carvana’s ambitious plan for cutting SG&A. Today, we’re exploring Snapchat’s recent tumble (plus a little overview of other beaten-down stocks). 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Snapchat (SNAP)

How can we not talk about Snapchat this week? 

SNAP’s share price collapsed after the company warned investors that its Q2 results will likely fall short of guidance — only a month after issuing said guidance. The news hit Facebook, Twitter, and even Google share prices hard too. 

Well, things haven’t been peachy since the end of April. Here’s a snippet of SNAP’s public filing that sent shockwaves throughout the market:

Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range. We remain excited about the long-term opportunity to grow our business.

Snapchat management initially expected to grow revenue by 20% to 25% year-over-year; it also expected Adjusted EBITDA to be somewhere between breakeven and $50 million. 

Both of these estimates would still pale in comparison to Q4 2021. To illustrate, here’s a quarterly comparison of Snapchat’s revenue and Adjusted EBITDA. Note that Q2 2022 represents the mid-point of guidance ranges. 

Adjusted EBITDA, in particular, drops significantly relative to both Q2 and Q4 of last year. 

Before the after-hours news, shares of SNAP closed at $22.49 per share. The next day, shares of SNAP opened at $14.50 and would eventually close at $12.80 — a 43% drop in one day. Yikes. 

The concern is pretty clear: a looming recession would not bode well for a company that’s heavily reliant on advertising revenue. Investors expect SNAP operations to tank, and perhaps the consensus will be right. But let’s take a look at SNAP’s recent operating performance to see if the 43% hit is justified or a discount. 

Although the photo-centric app lags behind its peers, Snapchat has steadily increased its daily active users (DAUs) over the last few years, averaging 5% quarter-over-quarter growth. While not quite as consistent, the company’s average revenue per user (ARPU) has generally trended in the right direction as well, up until Q1 of this year. 

Although there’s some cyclicality, Snapchat’s operating results have improved. Revenue is up 275% since the beginning of 2019. Adjusted EBITDA has usually been positive (six of the last seven quarters). And the company finally generates positive cash flow (four out of the last five quarters). 

Except you know there’s a “but” coming. 

Operations have gradually moved in the right direction, but the company’s share price has outpaced its actual growth, leading to what was (and, honestly, still is) a lofty valuation.

Snapchat has traded at pretty ridiculous price-to-sales ratios during its public tenure. Its five-year average P/S ratio is 19.4. As of yesterday’s close, its current P/S ratio is only 5.3. 

Even so, it’s still high. 

For comparison, the five-year average P/S ratios of Facebook and Twitter — two much bigger platforms — are 9.8 and 8.8, respectively. Meanwhile, Snapchat’s P/S ratio is now more in line with those historical averages but still questionably positioned relative to its social media counterparts (FB: 4.5; TWTR: 6.2)

Could SNAP return to its former glory (i.e., $70+ per share)? Sure, but it’ll likely take a few years in the event of a recession, considering ad spend is one of the first expenses to get slashed when budgets tighten. In the near term, I expect SNAP to fall even further.  

Wall Street tends to disagree. Here’s its consensus analysis:

Other Potential Bullish Bears

Here are five additional stocks that have taken a beating, as well as notable stocks from previous DD reports. I’ve provided past and present valuation metrics to give you an idea of how much investor sentiment has retreated. Note that inclusion in this table does not indicate a bullish view. 

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of stocks that are either gaining or losing momentum. Last week, we dove into a few potentially oversold stocks, including behemoths Netflix and Amazon. Today, we’re exploring the so-called Amazon of used cars: Carvana.

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Carvana (CVNA)

Carvana is in a bit of a jam. Shares are down 86.3% this year — broader market headwinds are somewhat responsible, but Q1 results scared droves of investors away.

In case you’re unfamiliar, Carvana is one of the biggest online used car dealers. If we were to oversimplify its business model, the company buys used cars, reconditions them for resale, and then flips them for a higher price. (They also make money through vehicle financing and extras like gap waivers and vehicle service contracts — an area in which the company outperforms most of its peers.)

For that reason, gross profit is a more telling line item than revenue, which is why gross profit per unit sold (GPU) is a key metric for dealers like Carvana. It’s essentially how much the company earns from each car sale. 

Last quarter, the company’s retail GPU nosedived while selling, general, & administrative (SG&A) expenses skyrocketed. GPU fell from $4,566 in Q4 2021 to $2,833 in Q1 2022; SG&A rose from $620 million to $727 million — or $5,486 to $6,912 per unit. 

Long story short, Carvana didn’t make as much of a spread on each facilitated car sale, and overhead kept rising. 

The culprits? Macroeconomic factors like Omicron, used vehicle prices, and interest rates. Closer to home, management also attributed the bad news to reconditioning and logistics network disruptions. 

Here’s the company’s commentary from its shareholder letter:

Retail GPU was impacted by a more than $600 per unit increase in reconditioning and inbound transport costs relative to the prior year and a more than $100 per unit decrease in shipping revenue, driven by refunds to customers following extended delivery times. Retail cost increases in Q1 were primarily due to inefficiencies in the inspection and reconditioning centers and logistics network, which in turn were driven by Omicron, severe weather events and the extended timelines required to recover from these events, and due to lower retail units sold volume, which increased per unit cost. 

We believe the factors impacting Q1 were transitory, and we expect to see retail costs move toward more normalized levels over the coming quarters as our logistics network normalizes, and our expense levels are better balanced with sales volumes. 

And more elaboration:

We generally prepare for sales volume 6-12 months in advance, meaning we built capacity in most of our business functions for significantly more volume than we fulfilled in Q1. With our costs relatively fixed in the short-term, the lower retail unit volume led to higher cost of goods sold per unit (e.g., reconditioning and inbound transport costs), leading to lower GPU, and higher SG&A per unit. These effects combined with rapidly rising interest rates and widening credit spreads led to lower EBITDA margin.

Then the company released an updated plan in what seemed like an effort to assuage investor concerns. 

To summarize, Carvana management announced that they’re shifting their top priority from growing GPU to optimizing the company’s infrastructure to become cash flow positive. More specifically, management will take an axe to SG&A expenses — which means cutting down its labor force. That same day, Carvana fired 2,500 employees (many of which were informed via a pre-recorded Zoom session). Woof.

Beyond questioning Carvana’s staffing methods, the next immediate reaction is, “Will this impact the company’s ability to buy, recondition, and sell cars?”

You’d think losing 12% of your workforce is bound to strain someone’s day-to-day responsibilities. Well, Carvana believes its workforce grew well beyond its sales volume. Perhaps that’s true — because the company’s employee count ballooned by 1868% in five years. 

In addition to reduced headcount, management listed several opportunities to improve efficiency across the board, including but not limited to…

• Internal benchmarking to boost employee performance companywide (i.e., hold everyone to the same standard as the top 20% of Carvana workers). Easier said than done.

• Greater inventory visibility by relieving current logistics restraints that prevent the company from listing cars. Moreover, logistics improvements would reduce re-scheduling rates and delivery delays. Carvana plans to leverage its recent $2.2 billion acquisition of ADESA, a physical car auction business, to improve its processing network and reduce miles traveled. 

• In-sourcing certain activities that were previously outsourced, such as title and registration processing 

Carvana is a tech-centric company, but the used car industry is still far from a lean, mean, operating margin machine.

How feasible is Carvana’s updated business plan?

Its goals are quite ambitious; it wants to drop from $4,780 to $3,000 of SG&A per unit sale on an annual basis. (SG&A per unit = how much overhead it costs to produce a single sale.)

Assuming 100,000 unit sales, that’s $300 million of SG&A. As a reminder, Carvana’s SG&A expenses in the first quarter of 2022 were $727 million. To reach its goal, it would have to trim that amount by almost 60% — or significantly raise sales volume at the same level of overhead.

Here’s how Carvana performed in this area for a few historical periods compared to its FY23 goal. 

Carvana also provided a composite SG&A, which consisted of each SG&A line item’s best quarter, which totaled $3,891 of SG&A per unit sold. To reach its FY23 goal, Carvana would have to reduce each of these categories by a combined $891 per unit — or $89 million with 100,000 unit sales. 

But, obviously, this is a fictitious quarter. The gap is much wider. 

Is this realistic?

Let’s start with how the company has performed in this area over the last three years. 

If only the yellow line were as steady as the red one. 

Here’s the biggest takeaway from this chart: Yes, Carvana has managed to nearly triple its retail unit sales — but, as the red line shows, SG&A has outpaced gross profit (the lone exception was Q2 of 2021). The gap has widened severely. 

Let’s look at this from another perspective. SG&A has exceeded gross profit by at least 30% in 7 of the last 13 quarters. That’s a lot of cash burn, even when you account for non-cash components like depreciation & amortization and stock-based comp. 

Our final chart gives us one last perspective of the magnitude of Carvana’s ambitious operational reversal. 

The company has sniffed profitability in the last year and positive cash flow could be on the horizon, but supply chain issues and rising interest rates don’t bode well for used car shopping in the near term. 

In all walks of life, it’s generally wise to underpromise and overdeliver in order to set the bar low and pleasantly surprise people. This feels like the opposite. For the sake of Carvana shareholders, hopefully I’m wrong. Carvana shares closed at $32.88 on Thursday — not a bad entry point relative to its astronomical 52-week high of $376.83, but perhaps not the bottom for the nirvana of used cars.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

The stock market has seen better days. Fears of rising inflation and corresponding fed rate hikes (on top of the usual pandemic, supply chain, and geopolitical issues) have investors running for the hills. 

However, one investor’s trash is another’s treasure. If we apply a glass-half-full perspective to the current downturn, we can locate a few severely undervalued companies.

So, today’s issue (and likely future ones) will explore several companies that have triggered a momentum indicator — the Relative Strength Index (RSI), which measures the magnitude of recent price changes to analyze overbought or oversold conditions. 

Based on recent trading activity, stocks will generate an RSI between 0 and 100. Traditionally, scores below 30 indicate the stock is oversold, while scores above 70 indicate the stock is overbought. This measurement alone does not guarantee a rebound today, next week, or anytime in the future. That said, it can expose more appealing entry prices for long-term investors. 

Let’s take a look at a handful of stocks that have slipped well below that RSI threshold of 30. 

But first, is there someone you know who’s missing a little stock research in their life? What better way to brighten their day (and maybe even their portfolio) than to share this post with them?

Share

Thank you!

Is Lyft Stock Oversold?

Lyft’s business model relies on two groups: riders and drivers. Unfortunately for the #2 ridesharing provider, neither group has recovered to pre-pandemic levels. Here’s a quarterly summary of active Lyft riders (in millions) since the first quarter of 2020.

Nevertheless, Lyft had a solid first quarter, narrowing its operating loss to $199.3 million (an improvement from $416.4 million in the first quarter of 2021). While Lyft has inched closer toward operating profitability, the current macroeconomic environment could reverse that trend in the near future. 

On its Q1 call, the company warned investors of rising costs. The gasoline price surge makes driving strangers to and fro less appealing. In turn, Lyft has a tough choice to make — lift driver investments/incentives and eat into profits or lose drivers and risk losing business. 

Lyft plans to take the latter approach, which is the impetus behind significantly lower adjusted EBITDA guidance for Q2: between $10 and $20 million compared to $55 million in Q1. 

Ridesharing services like Uber and Lyft have become transportation staples, so it’s no surprise to see Wall Street so bullish about LYFT while it trades near its all-time low. 

Is Netflix Stock Oversold?

The OG streaming platform can forever lay claim to the cultural phenomenon that is “Netflix and Chill.” However, investors are hesitant to believe Netflix will remain the preeminent platform for watching movies and shows. 

This about sums it up.

The streaming giant is, well, still giant at 221.6 million paid memberships — but that’s not 221.8 million paid memberships. For the first time in at least a decade, the company lost subscribers on a net basis. It’s easy enough to rationalize that people aren’t stuck inside anymore, so fringe watchers no longer need the company’s services — but there’s also some uneasiness around pricing, especially during a turbulent period economically. 

Here’s a clean overview of Netflix’s price hikes over the years from the Verge. 

That premium plan…sheesh.

And Wall Street tends to echo that uneasiness, issuing 28 holds. 

Is Amazon Stock Oversold?

Yes, even the eCommerce titan and cash-flow machine has taken a few blows — AMZN is down 43% since its 52-week high. 

The tech sell-off theme is still in play here, but Amazon’s first quarter performance didn’t help matters, as the company reported weaker-than-expected retail revenue. On top of that, thanks to a $7.6 billion non-operating expense related to its interest in Rivian Automotive, Amazon reported its first net loss since 2015. 

Even Operating cash flow was negative, down from $4.2 billion in 1Q21 to a cash burn of $2.7 billion. 

Still, it’s Amazon. Does the miss warrant a 43% fall? Probably not. 

Wall Street agrees.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of stocks that are either gaining or losing momentum. Last week, we dove into Royal Gold — a specialized financier for precious mineral mining that’s gained a lot of momentum this year. Today, we’re exploring a company that’s been trending in the wrong direction but may have significant upside potential.

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Losing momentum: nVent Electric PLC (NVT)

nVent Electric (NVT) is an electrical component manufacturer that owns brands like Caddy, Erico, Hoffman, Raychem, Schroff, and Tracer. If it protects and connects critical electronics and equipment, nVent probably makes it. 

The company divides its products into three segments: 

• Enclosures: metallic and non-metallic enclosures, cabinets, subracks, and backplanes.

• Thermal Management: heat tracing, floor heating, fire-rated and specialty wiring, sensing, and snow melting and de-icing solutions.

• Elecrical & Fastening Solutions: fastening solutions can range from bridle rings for cable management to clips for securing light fixtures to the ceiling. 

Shares of NVT have taken a hit in 2022 — down 9.4% thus far. 

Why? Certainly not because of operating performance. 

Last year, nVent generated $2.5 billion of sales — a 23% increase relative to 2020 — thanks to strong growth across each business segment as well as inorganic growth through strategic acquisitions. Moreover, the company’s Adjusted EPS rose 31% year-over-year to $1.96, and free cash flow was robust at $334 million. 

So, what gives?

Like most of the market, NVT has seen its share price retreat due to the broader downturn. 

Yet, the word “growth” was mentioned 70 times on the company’s latest earnings call. That’s because the company benefits from the broader electrification movement. Solar, data centers, data networking, automotive, oil & gas, infrastructure — these industries (and many more) all rely on electronics one way or another. nVent creates the oft-overlooked components that enable safety, constant up-time, and cost-efficiency. 

Here are a few compiled quotes from CEO Beth Wozniak during the call:

With our Eldon acquisition and our global IEC Enclosures portfolio, we recently won a multi-million dollar deal for protection solutions in the food and beverage industry. We were able to provide the same solution in Europe and the US, selling globally and serving locally. 

With infrastructure investments in universal broadband and fiber-to-home, we won a key project with one of the largest world Internet providers in the US, providing outdoor protection systems.

With increased data demands and reliability in data centers, we won a multi-million dollar project providing a highly resilient connection solution. With the move to renewables, we've won dozens of biofuel upgrade projects with our Thermal Management heat trace offerings.

Recently, we were awarded a large multi-million dollar project for one of the world's largest software companies with our advanced liquid cooling solutions. Since then, we have more than doubled these sales to over $200 million annually and expect to continue to grow high double digits.

It helps to have a physical tie to the electrification of everything. Since the pandemic, nVent has steadily increased quarterly revenue and expects momentum to remain strong for the current year, even with expected supply chain challenges and inflation headwinds. 

The company prudently oversees its costs too, as operating income has averaged roughly 14% per quarter, excluding 3Q20 when the company recognized an impairment of goodwill after the pandemic tanked oil and gas prices. 

Perhaps more importantly, nVent consistently generates ample free cash flow for acquisitions and dividends. 

Is NVT stock a good buy?

nVent has demonstrated steady organic and inorganic growth across all verticals. Corporate costs appear stable relative to revenue, R&D isn’t excessive by any stretch of the imagination, and margins are solid. So, the company’s appeal is high. 

How does NVT compare to its peers though? Based on a few key metrics, it’s in the middle of the pack.

The below table shows how NVT stacks up against other companies within the Electrical Components & Equipment sub-industry, with the exception of AZZ (Heavy Electrical Equipment).

Compared to peers, there may be other opportunities with higher upside, such as WIRE and ATKR.

That said, shares currently trade at $34.32, representing a PE ratio of 21.3. Looking ahead, NVT trades at 16x forward earnings for FY22, which suggests — all else equal — there’s a chance for NVT to hit mid-$40s over the next year. 

Wall Street’s consensus price target for NVT is $42.83, implying an upside of nearly 25%.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of stocks that are either gaining or losing momentum. Today, we’re narrowing our focus on a single stock — RGLD.

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Gaining momentum: Royal Gold, Inc (RGLD)

Royal Gold, Inc (RGLD) is an aptly named royalty company for precious metals — primarily gold. 

Mining is a very complex, capital-heavy, time-consuming operation. Building out the necessary infrastructure to mine metals from the earth isn’t exactly a breeze — not to mention getting permits and hiring local labor. 

But Royal Gold sits in a unique (and comfortable) position. It’s essentially a specialized financier, funding mining exploration and production projects. In return, the mining operators give Royal Gold a shiny slice of the pie. 

Royal Gold generates revenue from two sources: streams and royalties. 

• Metal stream agreements grant the company the right to purchase physical gold, silver, or copper produced from the mining operations of its partners. The price is determined at the onset of the agreement and is usually much lower than market value. To give you an idea, for one of its mining projects, Royal Gold pays its operator the lesser of $435 per ounce or the prevailing market price at the time. For reference, the current price of an ounce of gold is roughly $1,950. That’s a helluva profit. 

• Royalties give the company the right to a percentage of revenue or metals produced from its mining projects. In other words, the operators mine, market, and deliver the metals to their customers — then Royal Gold receives a royalty. 

Because Royal Gold is a specialized financier and not involved in operations, it is susceptible to third-party operating risks. By that, I mean it isn’t directly overseeing the day-to-day mining of these precious metals, which can come back to bite the company. For instance, one particular mine that straddled the border of Chile and Peru didn’t comply with environmental standards, and the Chilean government ultimately sanctioned and shut down the project. This resulted in a major impairment for Royal Gold back in 2018, as you’ll see in their financials. 

Still, Royal Gold’s operations are quite lucrative. Note that RGLD’s FY21 ended on 6/30; more recently, the company changed its fiscal year from 6/30 to 12/31, so FY22 will conclude on 12/31/22. 

Operating margins are quite healthy, and that’s including significant levels of depreciation, depletion, & amortization, which are non-cash expenses. 

Royal Gold reinvests much of its profits in additional projects. At any point in time, the company has several acquisition opportunities in review. Even with sizable acquisitions — which then produce additional streams of revenue — the company generates steady amounts of free cash flow. 

Note that Royal Gold invested heavily in various Streams in 2016 — $1.3 billion to be exact. I share this to illustrate that RGLD may, occasionally, invest heavily in mining projects. 

So, why is RGLD up 36.4% in 2022?

When times are tough economically, people often look to gold as a safe haven. But investing in a financier like RGLD can assuage some of gold’s volatility and produce better long-term returns, especially since it issues a quarterly dividend.  

Here’s a return comparison of gold and Royal Gold over the last five years — RGLD appreciated by 115% compared to gold’s 55% return. 

Considering the compounding uncertainty of the war in Ukraine and its impact on broader economies, many investors have flocked to gold and related entities — hence the recent spikes in the chart above. (It also doesn’t hurt that RGLD is raking in profits.)

Shares of RGLD trade near the stock’s all-time high (it closed at $141.28 on Thursday). For that reason, there’s probably a better entry point on the horizon. Wall Street echos that sentiment, as its consensus price target is $138.50.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of stocks that are either gaining or losing momentum. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Gaining momentum: Virtu Financial (VIRT)

Virtu Financial (VIRT) is a market maker. In case you’re unfamiliar with this concept, take a look at an excerpt from my Robinhood Due Diligence report:

Market makers are firms that continuously quote both sides of a transaction: the price they’re willing to pay for a stock (i.e., the bid) and the price they’re willing to sell a stock for (i.e., the ask). The difference between the two prices is known as the bid-ask spread. These firms are integral to the investing process because they help keep markets liquid. 

When retail investors make trades through a broker (such as Robinhood), the broker sends orders to a market maker to execute the trades. In exchange, the market maker pays the broker a rebate for the volume activity (and, indirectly, insight into buy/sell orders). The rebate is based on a percentage of the bid-ask spread. This is how the PFOF model works.

Market makers provide liquidity to markets, which makes them an essential component of our financial system. The profitability of market making coincides with trading volume and volatility, so financial results can vary significantly from year to year (as you’ll see below). More volatility = broader bid-ask spreads = more profits. 

Considering the influx of new traders over the last couple of years, it’s been a good time to be a market maker.

Considering Virtu is responsible for roughly 25% of retail order flow, it’s been a good time to be a Virtu shareholder. 

Just this year, shares of VIRT are up 18.6%. 

What’s happening? Well, this year’s share appreciation can be attributed to smashed earnings expectations. But the underlying catalyst is Virtu’s top-line growth (thanks to more trading) and margin optimization after a couple of strategic acquisitions over the last five years.

Virtu has several sources of revenue. Trading income — their profits from bid-ask spreads — is easily the largest (75% of FY21 revenue), followed by trade commissions (17%; usually from institutional investors), as well as licensing fees for some trading technology solutions. The company also generates interest income from the securities it buys and sells.

Here’s a look at Virtu’s disaggregated revenue sources:

Needless to say, the company’s revenue results are unpredictable and contingent on market activity (stagnant markets = tighter spreads). Fortunately, the meme stock revolution and retail trading surge have stimulated trading and market-making activity — a trend that is likely to continue. Equally as important, Virtu has kept operating expenses steady over the last three years while it assimilated the acquisitions of Knight Capital and ITG. 

An interesting caveat (and not totally uncommon) is that Virtu Financial Inc is a holding company that only owns 63% of Virtu Financial LLC, the operating company. The other 37% is owned by a mix of parties, including the company’s founder, Vincent Violi. What impact does this have? Virtu Financial LLC makes sizable distributions to noncontrolling interest holders, which eat into VIRT’s bottom line. That said, VIRT also pays a quarterly dividend to its common shareholders ($0.24 a share). 

Increased trading activity and recent volatility bode well for Virtu, which is well-positioned to continue raking in profits in the near term. 

Shares of VIRT closed at $33.69 on Thursday. Wall Street’s consensus price target is $36.10.

Losing momentum: Vroom Inc (VRM)

“So how do investors get comfortable owning the shares here, given an already tough labor logistics, capacity environment? And how do you plan to fund the business if the stock — if the share is not rerate in such an environment?” — Rajat Gupta, J.P. Morgan Analyst, on VRM’s latest earnings call

These were the opening questions of the Q&A portion of Vroom’s 4Q earnings call. Leading up to them, Rajat referenced the company’s cash burn and liquidity concerns.

Not exactly a promising sign. 

Vroom Inc (VRM) is an online marketplace for buying, selling, and trading in used vehicles. In case you’re unfamiliar with them, it’s the same business model as Carvana, which is a direct competitor. 

In Vroom’s case, “losing momentum” grossly underestimates the company’s recent stock movement. 

Year to date, VRM is down 74.4%. Over the last year? Shares have withered by a stomach-churning 92.2%. 

Why is Vroom crashing and burning? 

If you’ve read the news at any given point in the last week, month, or year, you’d know the world is undergoing a helluva supply chain crisis. The auto industry experienced its fair share of economic fallout. 

Yet, simply glancing at Vroom’s revenue growth would imply the opposite. 

Unit sales jumped by 89.1% in 2021, from roughly 63,000 to almost 120,000.

But revenue growth is deceivingly high. Even as an online business, Vroom operates in a low-margin industry — used cars. And it shows in their financials. It’s more insightful to focus on gross profit, which accounts for the high cost of sales for vehicles (i.e., acquiring, transporting, and reconditioning for resale).

Not quite as glowing. The company’s operating losses have been moving in the wrong direction as the platform’s user base has expanded. 

Vroom needs to facilitate a lot of unit sales to achieve profitability. 

To give you an idea, for Vroom to achieve breakeven operating results (not even net profits), it would have to generate $8.8 billion of revenue — based on a gross profit margin of 6.3% and operating expenses of $561 million in FY21. That’s assuming operating expenses don’t budge. In other words, Vroom’s current sales staff, logistics team, and broader corporate infrastructure would have to handle nearly triple the volume of work. 

Maybe that’s not impossible. 

There are roughly 40 million used car sales per year. Vroom accounted for 119,073 sales in 2021 — not even close to 1% of all sales. So, taking the glass-half-full perspective, there’s plenty of market share potential for Vroom, even in a competitive industry. 

If we look at this in terms of unit sales, Vroom’s e-commerce segment is its real money-maker. It accounted for almost 75,000 unit sales in 2021 — up 40,000 from 2020. Vroom’s gross profit per unit (GPPU) for its e-commerce segment was $2,206. So, ceteris paribus, Vroom would need to sell roughly 255,000 units through its online platform to cover its existing operating expenses. That seems like a stretch in the current labor-strapped, component-strapped, oil-strapped, war-stricken environment.

But, again, it’s not impossible.  

Vroom acquired United Auto Credit Corporation in the fall, which will give the company its own lending arm. Currently, the platform connects users with third-party financing options. Going forward, Vroom will be able to offer more competitive rates, which, theoretically, should lead to more conversions and better economics for the company. (Assuming it has enough liquidity to get to that point.)

“[United Auto Credit Corporation] does business with 8,000 dealers across the country. They're going to continue to grow that dealer base. And then we'll get the benefits of converting them into a fully captive lender, which, we believe we'll have comparable economics when we fully transition to a captive lender like Carvana has, which would afford us an opportunity to increase our GPPUs between $800 to $1,200 a vehicle from a financing perspective.” —Bob Krakowiak, Chief Financial Officer of Vroom (lighted edited for clarity)

Long story short, Vroom needs to find ways to improve its gross profit margin and keep SG&A honest during a harsh period for auto-related businesses. In the near term, things aren’t likely to get much better for Vroom — but, long term, it gets a little more interesting. Especially considering shares of VRM closed at $2.86 on Thursday. 

Wall Street’s consensus price target is $5.38.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of stocks that are either gaining or losing momentum. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Gaining momentum: Teradata (TDC)

For decades, Teradata Corporation (TDC) was known for its data warehousing software. That image started to change in 2013 when it launched Teradata Cloud. And even more so when the company shifted to a cloud-based subscription model a few years later, a major but necessary strategic move. 

Now, a bevy of Fortune 500 companies, such as Coca-Cola and Verizon, rely on the company’s flagship subscription product: Vantage. This analytics platform software allows businesses to oversee all of their data — and use all of their preferred data tools and coding languages — on a single platform. It’s also designed to work in any cloud environment (on-premises, private, or public). 

But you may still be wondering, why the shift?

Under the old revenue model, companies like Teradata sold perpetual licenses — customers paid an upfront fee to access the latest data software/hardware. Then they’d upgrade after a few years when better products became available — or not. This model led to staggered cash flows and a lack of predictability. (Neither of which are ideal.) 

A 2017 Forbes article by Joe Harpaz provides a succinct example that aptly describes the appeal of a subscription service instead of the old perpetual licensing model:

As a simple case in point, take a look at sales of Microsoft Office, the ubiquitous suite of business processing software that includes Microsoft Word, Outlook, PowerPoint, and Excel. There was a time not too long ago when, if you wanted Microsoft Office, you spent around $350 to buy a CD-ROM, which came with a perpetual license for you to download the software and use it on your PC for as long as you’d like. Under that model, Microsoft would roll out new updates to the software every couple of years and hope that users would buy the new versions every three years or so. This year [2017], that model officially started to die as sales of Microsoft Office 365, the digital subscription version of the software, surpassed sales of traditional Office software for the first time.

Naturally, shifting to a subscription model appeased Teradata’s stakeholders — who like predictable revenue — and embracing cloud services enabled the company to stay competitive.

But it came with (expected) consequences.

Revenue dropped. A lot. Perpetual licensing agreements involve large upfront payments — subscriptions space them out. Instead of receiving large, sporadic revenue bumps, the company recognizes revenue in equal installments over the course of its contracts. Hence, the steady decline from FY14 to FY20:

As logical as that may be, investors don’t like when revenue falls. So it’s no surprise that shares of TDC steadily declined from the $60 – $70 range in 2013 to as low as roughly $20 in early 2020. 

However, the market eventually realized Teradata could break the mold in February of last year when the company announced that its public cloud subscriptions grew from $40 million in FY19 to $106 million in FY20. That trend continued this past year; public cloud annual recurring revenue jumped again to $202.

Recurring revenue has, slowly but surely, picked up over the last four years — particularly Teradata’s public cloud subscriptions. During the company’s investor day in September, management outlined robust growth for this segment:

“This year we continuously focused on delivering on our commitments, including building our recurring revenue streams into sustainable and profitable revenue and free cash flow. All of which positions us to achieve over $1 billion in [Public] Cloud ARR and approximately $550 million in free cash flow in fiscal 2025 and deliver significant long-term value to our shareholders.” (Emboldened for emphasis)

The recent market sell-off didn’t do it any favors, but the company’s Q4 earnings release reinvigorated investor interest — for a few reasons. Despite a revenue dip relative to last year, the company managed to double its adjusted EPS expectations. From a true dollars standpoint, net income was up 7.7% in FY21 ($147 million vs. $129 million in FY20). 

On top of that, company management announced the commencement of a $250 million share buyback program. So, shareholders should see some upward price momentum. 

“While you may hear a lot about various cloud startups, let’s be clear on how Teradata stacked up in the application scenarios that Gartner [a technology research company] described as the most important: 

• Teradata is #1 in Cloud Data Warehouse…

• #1 in Cloud Logical Data Warehouse… 

• #1 in Cloud Data Lake… 

• and #1 in Cloud Operational Intelligence. 

We’ll be glad to walk you through where our competitors fall in the line behind us.” 

—Steve McMillan, President and Chief Executive Officer, Teradata

Shares of TDC closed at $51 on Thursday; Wall Street’s consensus price target is $57.

Losing momentum: Teladoc (TDOC)

As its name implies, Teladoc Health Inc (TDOC) removes the “going” from  “going to the doctor.” In other words, it enables digital doctor visits. Even before the pandemic, virtual health care was already a burgeoning industry. Most people recognized the convenience and were open to giving it a try. 

And the company was churning out very impressive growth rates. 

Then the pandemic happened. 

Teladoc management couldn't have scripted it any better (at least, from a revenue standpoint), as the public health crisis accentuated the need for telemedicine. 

Assuming Teladoc hits its FY21 forecast, it will have almost doubled its revenue in back-to-back years. That’s insane growth. 

So, it’s not a surprise that shares of TDOC jumped from $83 entering 2020 to an all-time high of $308 in February of last year. 

Since then though…well, it hasn’t been pretty. 

The rest of 2021 was brutal for TDOC, as it would lose a little more than 70% of its value relative to its peak price. This year has been much of the same story, as shares are down another 22% to $73.41. 

What’s going on with Teladoc stock?

The tumble started with the company’s guidance for 2021 membership growth…or lack thereof. 

Management projected its membership to be somewhere around 52 – 54 million members by the end of 2021. But they closed 2020 with 51.8 million members — so, after growing membership by 41% in 2020, the company expected growth to be somewhere between negligible and 4%. 

It’s safe to say that a 41% growth rate wasn’t replicable, but the possibility of practically zero membership growth caused concern. Teladoc is a growth stock that routinely operates at a loss, after all, so no growth = a problem. (As of Teladoc’s 3Q earnings release, management expects to conclude the year somewhere between 52.5 and 53.5 million members. It was at 52.5 million as of 9/30.) 

Apparently, investors didn’t like that. TDOC fell. 

The drop resumed in May. While it was partially driven by worse-than-expected earnings, many investors were likely spooked by the uptick in telehealth competition.

“Telemedicine is a fantastic medium, but if it’s just late-night urgent care, it’s kind of a commodity,” stated Erik Sossa, former head of benefits for Pepsico, in an interview with the Wall Street Journal. Being a commodity translates to being easily replaced. 

To add insult to injury, PepsiCo had recently parted ways with Teladoc, choosing LiveHealth Online (a competitor) instead. 

And, of course, as social restrictions were lifted and people tried to resume whatever “normalcy” is anymore, a telehealth provider seemed to lose some of its appeal. The recent tech sell-off was the icing on the cake. 

TDOC now trades around the same price as it was in late 2019. 

However, not all hope is lost. During the company’s investor day in November, management shared revenue guidance for the next few years: $2.6 billion in FY22 with the hopes of eclipsing $4 billion by the end of FY23. 

Membership increases or not, that would be incredible growth. 

Wall street’s consensus price target for TDOC is $129.48 as of Thursday.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Welcome to Market Movers, our coverage of companies making big splashes in the stock market — and in this edition, we’re focusing on 2021 performance. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Uppers

A10 Networks Inc (ATEN) helps companies secure their apps and networks, as well as optimize their traffic. Their solutions help service providers and enterprises maintain business-critical systems by protecting against various issues, such as DDoS attacks and encryption blind spots. 

Last year, the average cost of a breach was $4.24 million, which was the highest average in 17 years. So, as you can imagine, cybersecurity is a hot topic — which has been good for A10 Networks.  

“We are taking market share.”

That’s a quote from Dhrupad Trivedi, President and CEO of A10 Networks, on the company’s earnings call in late October. Dhrupad and the rest of the A10 team are in the midst of a strategic pivot to more security-led offerings, which are not only increasingly relevant nowadays but also stable from a recurring revenue standpoint. 

Relative to 3Q20, revenue increased from $56.6 million to $65.4 million, up 15% year-over-year. Perhaps more importantly, sales of security products grew 18% year-over-year — a sign that A10’s making waves in the cybersecurity space. 

ATEN shares appreciated by 68.7% in 2021, but they’re down 12.3% this year as shares closed at $14.15 on Thursday. Only three analysts cover ATEN, but the consensus price target is between $19 and $20 a share. 

MGM Resorts International (MGM) is a global hospitality and entertainment company based in Las Vegas, Nevada. If you’re into gambling, chances are you’ve heard of this casino operator. 

Naturally, the company benefited from society’s gradual return to normalcy and travel. Through the first nine months of 2021, MGM generated $6.6 billion of revenue — a sizable increase relative to the same period in 2020 ($3.7 billion), when operating results were suppressed due to the pandemic.

But it’s MGM’s digital presence that’s capturing the attention of many investors.

“We expect full-year 2021 net revenues associated with BetMGM will be in excess of $800 million.”

BetMGM, the casino operator’s play into the iGaming and sports-betting worlds, initially rolled out in 2018, but it’s spreading to new markets as states loosen their gaming laws. MGM expects to be live in 20 markets by the end of the first quarter of 2022. 

Last year was kind to shares of MGM, which appreciated by 42.5%. This year — not so much, as shares are down 10.7% to $40.62 as of Thursday’s close. Wall Street’s consensus price target for MGM is $56.16. 

Stride Inc (LRN) provides online schooling solutions to students, schools, the military, and enterprises in primary, secondary, and post-secondary settings. That includes professional skills training too, particularly in health care and technology. 

As you can imagine, online learning is pretty popular nowadays. Stride (formerly K12) has been a major benefactor. Just look at the company’s revenue growth over the last three half-fiscal years. Even with schools reopening across the country, Stride has continued making strides with its business model, growing enrollment in adult education programs by 38% relative to the same prior year period. 

Shares of LRN appreciated by 57% in 2021. While they dipped for a bit this year alongside the broader market selloff, they’ve since rebounded thanks to strong Q2 results and a big jump in management’s guidance for FY22.

LRN closed at $33.95 on Thursday; Wall Street’s consensus price target is $46.

Downers

DraftKings Inc (DKNG) is a digital sports betting company that also caters to fantasy sports players. The company dates back to 2012, but it has experienced meteoric growth in the last few years thanks to increased legalization of its trade — letting sports fans bet lines, spreads, stats, fantasy lineups, and more. 

Sports betting skyrocketed in 2020, thanks to stimulus checks and people spending way too much time indoors. DraftKings seized the opportunity at the perfect time, going public via a SPAC merger in April 2020. By year’s end, DKNG was up to $46.56 — a monumental 335% gain. 

But that momentum didn’t continue into 2021. DraftKings shares were in a slump last year, sinking by 41%.

Arguably the biggest issues are that DraftKings hasn’t even sniffed profitability and it burns through cash pretty quickly. Through the first nine months of 2021, the company generated a net loss of $1.2 billion. About $500 million of that relates to non-cash stock-based compensation — but still. That’s a hefty loss. 

Moreover, the company’s operating and investing activities burned through $366 million of cash. Fortunately, the company has plenty of it thanks to its recent IPO and a convertible notes issuance of $1.2 billion last year. 

But the growth potential of the online gambling industry — as well as its high barrier to entry — makes DKNG an intriguing long-term play. It’s even dabbling in NFTs, launching DraftKings Marketplace in August. In about a month and a half of trading activity, there were over 120,000 primary and secondary transactions, totaling about $20 million in gross merchandise volume.

Shares closed at $19.39 on Thursday; Wall Street’s price target is $51.81. 

Angi Inc (ANGI) connects vetted professionals with homeowners in need of assistance, whether that be fixing a leaky faucet, installing an electrical outlet, or trimming an overgrown tree. 

Angi makes most of its money from advertising and connecting contractors with customers — but this revenue source pretty much stagnated through the first nine months of 2021, mustering 1.7% growth year-over-year. 

Angi also hasn’t been an incredibly profitable company to date, swinging back and forth between minor losses and minor profits. In turn, investors have tended to react quite extremely to earnings misses. All said and done, shares of ANGI took a beating in 2021, dropping 30% by year’s end.

That said, the company’s Services segment has shown much more potential. Rather than handing homeowners off to contractors, Angi oversees the entire process — including communication, scheduling, and billing. In turn, Angi keeps an undisclosed percentage of the job. 

Revenue from Angi Services has already exceeded 2020 totals by 50.7% through nine months of operating results.

Shares of ANGI closed at $7.58 on Thursday; Wall Street targets $14.38 per share.

Lemonade Inc (LMND) is an online insurance startup that leverages AI and a user-friendly interface to offer renters, homeowners, life, pet, and auto policies. 

It was a high-flying growth stock, peaking at $182.90 in early 2021. But investors then soured toward Lemonade for a list of reasons. 

Growth rates slowed. Customer retention rates remained a concern. Losses widened. Shareholder value diluted. 

Of today’s downers, LMND has had the biggest fall from grace, sinking 65.6% in 2021 — a figure that worsens to 77.5% if you include this month’s trading results. 

However, Lemonade may still have long-term potential, especially if you focus on its growing customer base and gross earned premiums. As the chart below shows, the company has almost routinely generated double-digit growth rates for these KPIs quarter to quarter. 

Lemonade still pales in comparison to insurance giants like Allstate and Progressive, but it’s clearly popular among younger, first-time insurance buyers. 

Shares of LMND closed at $27.57 on Thursday; Wall Street’s price targets average out to  $55.33.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Good morning, investors!

Welcome to Market Movers, our coverage of companies making big splashes in the stock market. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Uppers

Lucid Group (LCID) is an electric vehicle manufacturer that’s actually been around for quite some time. The company was founded in 2007, but it only produced EV batteries and powertrains in its early days. That remained the case until 2016, when Lucid unveiled its first vehicle concept: the Lucid Air. 

Five years later, Lucid’s first car has hit the production and delivery phase — the dream is finally a reality. (Literally, the Lucid Air Dream Edition won the 2022 MotorTrend Car of the Year.) As of the company’s November earnings release, reservations for the Air had eclipsed 17,000, which indicates that Lucid is on pace to surpass Wall Street’s $1.7 billion sales estimate for 2022. 

LCID is up 263.8% this year. However, shares took a bit of a tumble on Monday, as the SEC commenced an investigation into the company’s business combination (i.e., SPAC merger) with Churchill Capital Corp. IV. And an even further fall once the company announced the issuance of $1.75 billion of convertible notes.

Shares of LCID closed at $36.52 on Thursday.

Meritage Homes (MTH) is a real estate development company that primarily constructs entry-level single-family homes (around $400,000 on average), particularly in the southeast and southwest US. 

Unless you live under a rock (even still, rock housing prices have probably skyrocketed too), you know the housing market has been on fire over the last year, which has cushioned Meritage’s bottom line. Through three quarters, the company’s net earnings are up 84.5% year-over-year, coming in at a hair under $500 million. 

And many housing market bulls believe the hot streak could continue for another decade thanks to years of subdued construction after the 2008 crash. One analyst even set a price target at $190 for MTH. 

As of Thursday’s close, shares of MTH were $118.87. 

Calumet Specialty Products (CLMT) makes — you guessed it — specialty products, such as oils, pesticides, waxes, asphalt, and lubricants. 

But the highly anticipated and potential breadwinner (eventually) is the company’s renewable fuels business. Last year, the company discovered that it could use its Montana plant to convert soybean feedstock into a variety of renewable fuels, like diesel and jet fuel. 

Through the first nine months of 2021, Calumet’s renewables segment was up 53% year-over-year, increasing revenue from $380 million to $580 million. Wall Street analysts have upped their price targets over the last few months, as the consensus target now rests at $22.70. 

After an unkind year of trading that saw CLMT drop below $1, shares have since roared back to $14.79 as of Thursday. 

Downers

Peloton (PTON) is an exercise equipment manufacturer and media company, which is renowned for its internet-connected stationary bikes and treadmills. 

Peloton cruised to record highs during the pandemic, as affluent home-dwellers purchased the company’s pricey workout equipment and started enrolling in online workout classes. But, despite all the peddling, investor interest has waned over the last year — and Peloton’s share price has hit the downhill cooldown. 

Naturally, as society reopened and people no longer had excuses for avoiding the gym, Peloton lost some of its appeal. Supply chain issues didn’t help. Within the company’s latest shareholder letter, Peloton significantly lowered its guidance for FY22 results, dropping expected revenue from $5.4 billion to…$4.4 to $4.8 billion. 

Shares of PTON opened 33% lower the next morning. Woof. 

Here was the company’s justification:

The primary drivers of our reduced forecast are a more pronounced tapering of demand related to the ongoing opening of the economy, and a richer than anticipated mix of sales to our original Bike. 

As of Thursday’s close, shares of PTON were $40.70.

Twitter (TWTR) is a short-form social media platform. That’s it. That’s the description. 

Many notable companies have witnessed their CEOs depart this year. 

Amazon. GE. American Airlines. Starbucks. Microsoft. Chipotle. Uber. 

Well, you can add Twitter’s Jack Dorsey to the list, who stepped down as CEO at the end of November. 

However, that’s not the catalyst behind TWTR’s recent 24% drop. Shares have taken a hit in response to the company’s earnings miss for the third quarter; Wall Street analysts collectively expected Twitter to turn a profit in Q3 (albeit, a modest one), but actual results came in at a loss. 

The culprit behind the miss? In September, Twitter reached an $809.5 million litigation settlement related to a 2016 class action lawsuit regarding misleading statements about the company’s future. Although revenue was up 37% relative to Q3 2020, investors weren’t thrilled. 

Although I’m biased as a Twitter user and shareholder, I think the platform still has a lot going for it. Recently, the company unveiled Twitter Blue, a low-cost subscription that grants users additional platform functionality. Less recently, but still somewhat new, Twitter incorporated its own “Clubhouse” capabilities in the form of Spaces. From what I’ve personally seen, these spaces can be huge for influencers, industry experts, thought leaders, and general discussion. 

Shares of TWTR closed at $46.46 on Thursday.

Nintendo (NTDOY) is a Japanese consumer electronics company and the eldest active video game manufacturer in the world. In case you’re unfamiliar, it’s best known for the Mario franchise, as well as game consoles like the Nintendo 64, Wii, and Switch.

Like many electronics manufacturers, NTDOY has also suffered from supply chain disruption, as Nintendo expects sales to thin year-over-year from $15.5 billion in FY21 to $14 billion in FY22 — its first revenue decline since 2017. 

Although shares have slid 25% this year, at least one analyst believes Nintendo shares are undervalued, primarily thanks to the Switch console’s continued demand. The consensus aligns with that sentiment, as the average price target for NTDOY is $70.78. 

Shares of NTDOY closed at $58.65 on Thursday.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

Good morning, investors!

Welcome to Market Movers, our coverage of companies making big splashes in the stock market. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Without further ado…

Uppers

Li-Cycle (LICY) recovers and recycles lithium-ion batteries. Here’s an elementary description of its recycling process: the company takes end-of-life batteries and battery-related waste, turns them into a powder-like substance (known as black mass), and processes them into reusable end products that can be sold back into the battery supply chain. 

Considering the world’s reliance on these types of batteries (e.g., electric cars, smartphones, power tools, etc.), Li-Cycle’s services could be in high demand down the road. 

That’s why shares of Li-Cycle are up 6.5% since completing its SPAC merger in August. 

Although Li-Cycle got $580 million of gross proceeds from its SPAC merger (and another $100 million last week through convertible notes with Koch Strategic Platforms), it’s still a small company that doesn’t generate much revenue yet. 

Through the first nine months of its FY21, Li-Cycle’s total revenue was a hair under $3 million — compared to about $27 million of operating expenses. 

That said, it’s early. The EV race is, at this point, a marathon considering most automakers don’t expect to offer all-electric lineups until 2030 and onward. Once that comes to fruition, the EV industry’s growth could bolster Li-Cycle’s bottom line — but that’s a ways away. 

Shares of LICY closed at $11.15 on Thursday.

SVB Financial (SIVB) is also known as Silicon Valley Bank, which should give you a pretty good idea of its business model. Self-labeled as “the Bank of the Innovation Economy,” SVB provides financial services to companies within the technology, life science and healthcare, private equity and venture capital, and premium wine industries. 

Over the last year, shares of SIVB are up 143.6%. 

Although SVB has been an active lender for nearly 40 years, its business has boomed since the start of 2020. Average total client funds (including deposits and investments) were $146.7 billion in FY19. During Q2 of this year, that figure is up to $308 billion. 

Shareholders have benefitted from SVB’s growth too; consensus EPS estimates stand at $31.28 for FY21 — up from $22.87 in FY20. 

Price targets for SVIB are all over the board though, from a low of $574 to a high of $841. As of Thursday’s close, shares of SVIB were $665.56. 

Nucor (NUE) is one of the largest steel manufacturers in North America, recycling 17.8 million gross tons of scrap steel last year. 

2021 has been kind to the steel industry — even in spite of a recent pullback. Steel futures prices have ballooned from $633 to $1,880 over the last 12 months. On top of that, steel companies are also poised to benefit from the proposed $1 trillion infrastructure bill (whenever it passes). 

And share prices have risen as a result — NUE is up 88.4% this year. That’s still only 4.6 times its estimated FY21 earnings. 

As of Thursday’s close, shares of NUE were $98.95. 

Downers

Facebook (FB), one of the eldest social media platforms, couldn’t escape our list this week. 

Shares of FB are down nearly 13% over the last month. Why? Well, Facebook is the latest company to disprove that all press is good press. 

It started with a series of articles by the Wall Street Journal, such as: 

• “Facebook Says Its Rules Apply to All. Company Documents Reveal a Secret Elite That’s Exempt” 

• “Facebook Tried to Make Its Platform a Healthier Place. It Got Angrier Instead” 

• “Facebook Knows Instagram Is Toxic for Teen Girls, Company Documents Show”

The source of these damning allegations would eventually come to light in the form of a whistle-blower — Frances Haugen, a former Facebook product manager. Earlier this week, Haugen outlined troubling, behind-the-scenes activity to Congress. Here’s an excerpt from her testimony: 

“I’m here today because I believe Facebook’s products harm children, stoke division, and weaken our democracy.”

Although Mark Zuckerberg’s response post from his personal profile received more engagement than I’ve ever seen, a global outage across Facebook, Instagram, and Whatsapp on the same day as the testimony didn’t help matters.

As of Thursday’s close, shares of FB were $329.22.

Lightning eMoters (ZEV) designs and manufactures zero-emission vehicle fleets, such as school buses, delivery vans, and ambulances. Surprise, Lightning eMoters is another electric vehicle company that merged with a SPAC to go public. 

In August, Lightning eMoters announced a strategic partnership with Forest River, a Berkshire Hathaway company and the largest shuttle bus manufacturer in North America. Lightning will build electric powertrains and provide charging products and services to Forest River over the next 4.5 years. The estimated value of the agreement is up to $850 million. 

ZEV jumped from $6.41 to $11.60 as investors reacted to the news. But that didn’t hold for long, as shares have dipped back to $7.93 since then — it's hard to justify a one-day jump of 81%, especially for a severely unprofitable company. In the second quarter of 2021, Lightning eMoters reported $5.9 million of revenue and a net loss of $46.1 million. 

Corsair Gaming (CRSR) designs and manufactures gaming accessories, components, and equipment (e.g., keyboards, headsets, controllers). Last year was a good year to be in the industry. 

Stay-at-home mandates translated to increased gaming during the pandemic. One study estimates that the gaming market generated $177.8 billion during 2020 — a 23% increase relative to 2019.

Naturally, Corsair raked in profits too — net revenue increased from $1.1 billion in FY19 to $1.7 billion in FY20, while the company turned a profit of $103 million after generating losses for the previous two years. 

Corsair smashed expectations in 2020 and continued to do so in Q1 of 2021. But it wasn’t enough. Corsair shares are down nearly 50% since last fall. 

Why? 

In this case, there may have been too much investor interest for Corsair. (At least, too much too quickly.) 

On its IPO day in September, CRSR opened at just over $15 a share. Over the next two months, it escalated as high as $51.37. The inflated price tag attracted plenty of short-sellers, which have profited handsomely from the stock’s gradual descent. As of last month, roughly 29% of CRSR’s public shares were shorted. 

Despite the short interest, Wall Street analysts are still bullish on Corsair with a consensus price target of $39.67. Shares of CRSR closed at $26.13 on Thursday.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

We’re putting a different spin on today’s edition of Market Movers. Rather than shed light on a stock that’s made a splash in the market recently, we’re going to highlight a stock that could experience some tailwinds based on undervalued fundamentals. 

Today’s company is National Mortgage Insurance Corporation. 

If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.

Free stock research

Now, without further ado...

National Mortgage Insurance Corporation is — you guessed it — a mortgage insurance company, which trades under its holding company, NMI Holdings (NMIH). When wannabe homeowners take out a conventional mortgage but bypass a 20% down payment, they’re required to get private mortgage insurance (PMI). In turn, the lender is protected against losses if the homeowners can’t pay the loan because the insurer foots the bill. 

Generally, mortgage borrowers can cancel their PMI once their loan-to-value ratio dips under 78%. Until then, the insurers collect monthly premiums. This is how NMI makes money. 

Considering the surge of home purchases this year — partially thanks to my generation’s collective decision to buy homes so that their canine children can have yards — you would think the mortgage insurance industry would be raking in insurance premiums. 

And you would be right. Here are NMI’s premium earnings by quarter since the end of 2018.

Since 4Q18, NMI’s net premium earnings have increased by 60%. Business is booming.

Yet, shares of NMIH are down nearly 38% over the last year and a half. 

What happened?

You don’t need dates to make an educated guess: the pandemic. 

For starters, we entered a temporary bear market that depressed companies across all industries. More specifically to NMI, forbearance programs rolled out throughout the country, enabling financially distressed borrowers to pause their mortgage payments, including PMI premiums. (Here’s a good overview of forbearance.) 

Consequently, as borrowers entered forbearance, NMI experienced a sizable increase of (a) loans in default and (b) risk in force on defaulted loans (the amount NMI could potentially be on the hook for). Loans in default — which don’t represent claims — peaked at 13,765 a year ago; this represented risk in force of $1.01 billion. 

As of June 30, those numbers have dipped to 8,764 and $625 million, respectively. Of those loans in default, roughly 90% were enrolled in a COVID-related forbearance program. So, these borrowers are treated as in default since they aren’t paying, but lenders have granted them leeway while they’re in forbearance. 

While these numbers may seem high, it’s important to step back and look at NMI’s portfolio from a broader perspective. NMI’s in-default loans comprise only 1.86% of its total policies in force. 

One of the reasons NMI’s default rate has remained so low is the creditworthiness of its borrowers. Borrowers with credit scores above 700 represent roughly 97% of NMI’s portfolio; only 8.8% of borrowers had loan-to-value ratios above 95%.

Financial Highlights

• Although loans in default remained low relative to NMI’s total policy count, insurance claims still popped to $59.2 million in FY20 — a 374% year-over-year increase. 

• NMI’s total revenue growth helped insulate it from these insurance payouts though. In FY20, net income experienced a negligible decline of $400 thousand despite the pandemic’s fallout.

• Through the first six months of 2021, insurance claims and claim expenses are down significantly relative to the same period in 2020; net premiums earned are up 9.7%.

Although earnings didn’t experience much of an impact, the company issued 15.9 million shares in June 2020, which helped the company raise almost $220 million. While this capital injected NMI with capital during a period of uncertainty, it also suppressed EPS. 

That said, the housing market boom has helped EPS figures recover.

Potential Hurdles

What happens when forbearances end? The financial consequences of the pandemic (e.g. furloughs, layoffs, pay cuts, less work in general) made it difficult for many people to pay their debt. To ease this burden (and prevent widespread foreclosures) forbearances programs’ enrollment skyrocketed. But the debt doesn’t go away. As those programs conclude and borrowers are required to make loan payments again, there’s likely to be an uptick in loan defaults and, thus, an uptick in claims. That works against NMIH’s bottom line. 

Here’s what Brad Shuster, NMI’s Executive Chairman, had to say about the issue during the company’s last earnings call.

The forbearance programs have been enormously valuable helping borrowers bridge from a point of acute stress to a much more stable position today. And the expanded set of modification and payment deferral options introduced early in the pandemic have helped a borrower successfully transition out of forbearance and default status. But as the programs wind down there will undoubtedly be some who are still struggling and forbearance will work for most, but not necessarily for all. And for this group, we expect there'll be another policy response because it doesn't make sense to leave these borrowers in forbearance on a perpetual basis, but it also isn't fair, and it doesn't make sense to cut them loose without support at the end of the foreclosure process.

Adam Pollitzer, the company’s CFO, added:

And just to layer on to that, our broad view is that there will be additional support that's offered. It certainly aligns with all of the conversations that have happened thus far in DC, even what we're seeing over the last few days in focus around an eviction moratorium, which is a rental focus, but it shows the eagerness to provide support. 

In short, NMI management believes the government will continue assisting borrowers in need. Despite this belief, the company has still modeled its reserves off of the assumption that forbearance programs aren’t extended — a conservative and prudent approach. As of June, NMI’s reserve for insurance claims and claim expenses was $101.2 million; in addition, NMI had a portfolio of available-for-sale bonds valued at $1.99 billion.  

What happens when interest rates rise and the market cools? As America re-opens its doors and the economy awakens from a pandemic slumber, the Fed must now consider whether it’s time to raise rates — which would eventually trickle to the mortgage industry. During their June meeting, Fed officials were somewhat split on when they think they’ll raise interest rates from near zero. Seven expected to increase rates in 2022; 13 out of 18 members expected to raise rates by 2023. 

Rising mortgage rates would discourage people from buying homes, meaning fewer mortgages and insurance premiums. However, NMIH’s fixed income investments would benefit from rising rates, partially offsetting the downside of an industry-wide dip. 

The Street’s Opinion

NMIH has quite a few analysts in its corner. Thanks to eight buy ratings, one overweight, and two holds, the stock registers a consensus “buy” with an average price target of $31.40. This implies an upside of 41.19%. 

Is NMIH undervalued?

At its peak before the pandemic, NMIH traded just north of $34 a share. Although NMI has since issued additional shares, its EPS has nearly rebounded to pre-pandemic levels thanks to a growing portfolio of policies. 

Yet, NMIH trades at a price-to-earnings ratio (P/E) of 9.8. For comparison, the P/E of the S&P 500 is greater than 31; the P/E of the insurance industry is 14.23. 

To be fair, NMIH’s price-to-book ratio is 1.3, which is slightly higher than the industry’s (1.2). 

So, is NMIH undervalued? 

Wall Street analysts think so. It appears to be based on its fundamentals. But I’ll leave you with comments from Claudia Merkle, NMI’s CEO, to help you decide. 

Looking forward, our outlook is positive. Industry volume is exceptionally strong with long-term demographic trends, supporting robust purchase demand and the experience of the pandemic reinforcing the value of home ownership. Credit performance is trending in a favorable direction with underwriting discipline remaining paramount across the mortgage market, record house price appreciation, providing a sizable equity buffer and an expanded and broadly applied government toolkit now available to assist borrowers through times of stress. Against this backdrop, we are executing on our plans and believe we are well-positioned to drive growth consistently, compound book value, and deliver for shareholders going forward.

Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.

If you haven’t subscribed already, you can do so here.

While I was compiling today’s Market Movers, my due diligence brought me down a bit of a rabbit hole, morphing the usual “uppers” and “downers” into a review of a single company’s latest earnings release. 

Enjoy.

Fidelity National Information Services (FIS) provides technology solutions for merchants, banks, and capital markets firms across the globe. In essence, it provides financial institutions and vendors with core IT systems and ancillary products and services. 

On Friday, July 30, shares of FIS closed at $149.05. 

On Monday, August 2, FIS closed at $139.12.  

By the end of trading on Wednesday, August 4, FIS had tumbled to $127.77.

What happened?

The drop coincided with the company’s earnings announcement for Q2, which was released before trading opened on August 3. 

News outlets have pointed to lower third quarter EPS guidance and full-year EPS guidance as justification for the fall. We’re going to focus more on the latter because it’s more comprehensive. 

As a refresher, EPS (earnings per share) is a common profitability metric — the higher the amount, the more valuable the shares. 

EPS is a staple within every public company’s earnings reports, including EPS for the previous period and guidance around future EPS from company management. It’s simply a company’s total earnings divided by its outstanding shares. 

However, it can get a little trickier when companies view earnings from a non-GAAP perspective (i.e. not from a standard accounting perspective). When a company adds certain one-time expenses, revaluations, or other non-cash charges to EPS, it becomes “adjusted” EPS. 

In sum, diluted EPS factors in every expense; adjusted EPS excludes certain expenses that the company believes aren’t representative of normalized and ongoing operations. 

So, long story short, FIS management provided a lower range for its full-year EPS ($1.20 to $1.45) than it had originally predicted ($1.30 - $1.60), on a diluted basis. 

On an adjusted basis, FIS raised its full-year EPS guidance from $6.35 to $6.55 to $6.45 - $6.60

Here’s where we have to put on our investigative hats: are FIS’s addbacks disguising real, ongoing expenses, or are they legit? 

Ignore the 9/30/21 numbers.

The top line represents the company’s GAAP EPS; the bottom line represents adjusted EPS. 

As you can see, FIS’s “estimated adjustments” are pretty significant for FY21. The biggest contributors are: 

1. Purchase accounting amortization

2. Acquisition, integration, and other costs

3. The U.K. tax rate change I mentioned above

“Purchase accounting” amortization refers to the amortization (a non-cash expense) of intangible assets acquired through past acquisitions — such as customer relationships and contracts. These assets will continue amortizing, but they also generate revenue, so they make sense to add back to EPS. 

“Acquisition, integration, and other costs” cover a variety of expenses, ranging from (a) lingering costs from FIS’s $43 billion acquisition of Worldpay, (b) data center consolidation activities, (c) costs related to COVID-19, and (d) an accelerated stock compensation expense. 

In my experience, these types of addbacks are pretty common for adjusted EPS. And they weren’t new or unexpected — FIS included them in adjusted EPS within its guidance earlier in the year.

Is FIS oversold?

Now, was FIS’s 14% drop justified? Is it oversold to the point where it’s undervalued?

I want to share several snippets from CEO Gary Norcross and CFO James Woodall on FIS’s August 3 earnings call, which seem to indicate “Yes.” 

Regarding 2Q (which ended on 6/30) revenue:

Revenue of $3.5 billion was the highest quarterly revenue in our company's history. Revenue increased more than $500 million or 17% year-over-year, and adjusted EPS grew 40%. Sales results, which were the strongest in our company's history, are being driven because our solutions remain in high demand, enabling businesses of all sizes to advance the way the world pays banks and invest.

Regarding its share repurchase program (which applies upward pressure to stock prices):

We repurchased 2.7 million shares worth approximately $400 million during the quarter, bringing share repurchase to a total of $800 million year-to-date at an average price of $145 a share. 

Right now, we continue to see the intrinsic value of our stock is undervalued. And so obviously, we're very focused on share buybacks and deploying free cash flow in that manner.

Regarding free cash flow:

We generated free cash flow in excess of $1 billion this quarter, which is the most in our company's history and reflects the highly cash generative nature of our business.

Regarding FY21 revenue guidance:

Based on our strong results and favorable outlook, I'm pleased to raise full year guidance. We now anticipate revenue of $13.9 billion to $14 billion for the full year 2021, which represents an increase of $250 million over our prior guidance. 

A lot of positive takeaways from the company’s earnings meeting. But it seems as if investors were more focused on FIS’s EPS guidance revision — or maybe it was simply a technical event since FIS’s share price fell below its 200-day moving average. 

Street Valuation

FIS has bounced back some, closing at $134.31 on Thursday. Despite the recent sell-off, the Street collectively views FIS in a favorable light with 22 buy ratings and an average price target of $166.53, 

Based on analyst valuations, FIS is undervalued with an implied upside of 24%. 

If you enjoyed this week’s Due Diligence, please take a second to share it:

Share Due Diligence

And subscribe if you haven’t already:

Subscribe now

Welcome to the sixth edition of Market Movers, our coverage of companies making big splashes in the stock market. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

Also, if you’re new here — welcome, it’s lovely to have you — and don’t forget to subscribe to our newsletter to get these reports in your inbox.

Subscribe now

Uppers

Amyris(AMRS) is a synthetic biology company that converts plant sugars into specialty ingredients (e.g. cannabinoids) in consumer products. This results in clean products with sustainably sourced and cost-effective ingredients.  

Why is AMRS up 21% since last Friday? 

One explanation could be the Barron’s effect, as Amyris was featured in last Saturday’s magazine. Another belief is that it's gaining interest from the masses of retail investors on social media. And those investors might be onto something.

The problem for synthetic biology companies is scaling to profitability. Amyris appears to be the closest to accomplishing that feat. 

In May, Amyris reported that revenue increased from $29.1 million in 1Q20 to $176.9 million in 1Q21 — a 507% year-over-year increase. More impressively, the company’s operating income was $92.9 million in 1Q21 versus an operating loss of $31.8 million a year prior. While the company recognized a net loss of $290.1 million, it was driven by a $326.9 million change in fair value of convertible notes (a non-cash expense). 

Shares of AMRS closed at $15.84 on Thursday. 

Hillman Solutions(HLMN) is one of the largest distributors of hardware (like fasteners, work gloves, and key fobs) to the home improvement space. The company boasts a portfolio of 112,000 products, which it distributes to over 26,000 retailers in North America. 

HLMN went public earlier this month via a reverse merger with a SPAC by the name of Landcadia Holdings III, which formed last December. And it’s quietly up 23.7% since then. 

Why? Well, since it took the SPAC route to go public, there’s limited information available. However, according to its investor presentation, its preliminary sales for 2020 were $1.37 billion — up from $1.22 billion in 2019. The company also generates solid free cash flow (estimated $176 million). It also used its SPAC proceeds to significantly reduce its outstanding debt. One expert pegs HLMN at $14 to $15 per share by the end of the year.

The company’s first earnings release as a public entity will take place on July 30. 

Shares of HLMN closed at $12.13 on Thursday.

Aehr Test Systems(AEHR) provides test systems for logic, optical, and memory chipmakers. 

Aehr is a small company that’s made a big splash over the last week, as shares of AEHR jumped from $2.81 to $6.20 in one week — a 120.6% jump. 

A week ago, Aehr reported its FY21 annual results (the company’s fiscal year ended in May). While its net sales dipped from $22.3 million in FY20 to $16.6 million in FY21, the company’s fourth quarter offered a brighter outlook, as sales increased 102% year-over-year from $3.8 million to $7.6 million. 

More importantly, Aehr management expects FY22 revenue to exceed $28 million (a 70% increase) and to turn a profit. This is primarily thanks to a $10.8 million order from its lead silicon carbide customer (an unnamed fortune 500 semiconductor supplier). 

Downers

Carnival(CCL) is an international cruise line headquartered in Doral, Florida. 

Unless you’ve been living underwater, you know that the pandemic sank the cruise industry. 

With the country reopening and vaccines circulating, it looked as if Carnival had weathered the storm. After trading in the single digits in early 2020, CCL had resurfaced to the $31.31 in June. Things looked swell.

That is, until the recent spread of COVID-19’s delta variant, which is threatening the travel industry once again. 

Earlier in July, a Morgan Stanley analyst released a report on the cruise industry; the travel agents he surveyed indicated that a full recovery isn’t expected until the first half of 2022, at the earliest — continuously changing protocols from health authorities were a big factor.

Speaking of...

On July 19, an appeals court decided to maintain the pandemic restrictions on the cruise industry after an uptick in COVID cases. Investors didn’t like that. Shares of CCL dropped to as low as $19.32 that day. 

While shares of CCL have bounced back to $22.71 as of Thursday, they’re still down 27% from a June high of $31.31. 

Splunk (SPLK) produces software for searching, monitoring, and analyzing data for security purposes. A March 2021 Barron’s article summarizes their business quite well:

Splunk helps customers improve the performance of computing systems, an area the industry calls observability; helps developers write and deploy better software, what software types call DevOps; and provides insights into system security and compliance.

On December 2, SPLK traded for over $205. 

By the end of trading on December 3, shares were down 23%. What happened?

We’ll try to keep this summary to a paragraph: Splunk was founded before cloud technology took off. So, when it shifted its software from physical data centers to the cloud, it moved to a different revenue model — subscriptions versus the previous perpetual licenses. While this was good news, it created a revenue anomaly that surfaced in the company’s third quarter earnings, which Splunk reported on December 3, 2020. 

Splunk’s profits were distorted. Investors dumped their shares. 

The trend continued with the company’s fourth quarter earnings in March. Investors dumped more shares. SPLK dropped all the way to $111.98, a 45% decline. 

However, it bounced back somewhat after reporting a $1 billion convertible notes investment by Silver Lake, which the company will use to fund growth initiatives and repurchase shares. Plus, analysts tend to agree that SPLK is undervalued.

SPLK closed at $141.07 on Thursday. 

Krispy Kreme(DNUT) needs no introduction, but if you’re blissfully unaware, it’s one of the most beloved and well-known sweet treat brands in the world.

On July 1, Krispy Kreme became a public company once again, as shares opened at $17. Krispy Kreme went public in 2000 and was taken private in 2016.

Krispy Kreme’s second first day of trading was kind to the donut maker — as shares closed at $21. However, investors have gradually lost their appetite for Krispy Kreme over the last three weeks, as shares are down to $16.07 as of Thursday. 

Despite Krispy Kreme’s prominent brand and scrumptious fried dough, it’s not a profitable company. Last fiscal year, the company’s net loss was $60.9 million. That wasn’t unique due to the pandemic either — it incurred a net loss in FY19 and FY18 too. 

Krispy Kreme’s debt levels are also concerningly high — $827.1 million total debt in FY20, which doesn’t even include another $400+ million of operating lease liabilities. Unsurprisingly, its annual interest payments are quite the cash burden. 

To be fair, the company’s earnings are significantly diminished by high levels of depreciation and amortization ($80.4 million in FY20). Plus, the company’s operations have historically generated plenty of cash flow ($28.7 million in FY20; $80.8 million in FY19; $148.3 million in FY18). 

And, of course, they know how to make a good donut.

These reports are free.

You know what else is free?

Subscribing to this newsletter.

Subscribe now

Welcome to the fifth edition of Market Movers, our coverage of companies making big splashes in the stock market. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

Uppers

Hertz Global Holdings, Inc.(was: HTZGQ; now: HTZZ), which is one of the largest vehicle rental companies in the world, was in an unenviable position last year. 

No travel = no business trips or vacations = zero demand for car rentals. 

In May 2020, the company filed for chapter 11 bankruptcy protection; shares of Hertz stock plummeted to $0.56 a pop. 

However, that next month, shares of Hertz rebounded inexplicably. People were pouring money into a bankrupt company. If you’re unfamiliar with bankruptcy proceedings, common equity holders sit at the bottom of the totem pole — they’re paid out last. In other words, people were buying worthless shares. 

One year later, travel is back, new car production is down (thanks to chip shortages), and Hertz has successfully exited bankruptcy. The company was sold to an investor group via bankruptcy court, the members of which put in about $4 billion of new equity in the now-resurgent rental car company. 

Remarkably, shareholders muscled through the fray with something to show for it; pre-bankruptcy shareholders received $1.53 a share, 3% of the stock in the reorganized company, and 18% of the post-bankruptcy company in the form of warrants. 

Shares of HTZZ closed at $26.99 on Thursday. What a world.

Marin Software Inc(MRIN) offers a unified SaaS advertising management platform for search, social, and eCommerce advertising. In other words, it provides enterprise marketing software to advertisers and agencies. 

It’s a good time to be in the digital marketing space — it’s an even better time to catch the attention of Redditers. 

On June 23, Marin announced an integration with Instacart Ads, enabling brands to more easily connect with customers at the point of sale. (Here’s an explanation of how it works.) One way or another, this announcement caught the attention of Reddit’s army of unified retail investors.  

Since June 23 — in other words, a week ago — shares of MRIN are up 782%, closing at $15.08 on Thursday. For the record, it’s up nearly $10 a share since I started writing this report earlier this week. Again, what a world.

Bed Bath & Beyond Inc. (BBBY) is an American chain of retail stores that sells a wide assortment of merchandise in the Home, Baby, Beauty, and Wellness markets. I just bought pillows there, actually. 

Bed Bath & Beyond is in the midst of executing a turnaround plan — and doing surprisingly well. 

On Wednesday, the company announced its 1Q21 results, including a net sales increase of 49% year-over-year. Management also expects full-year sales to be higher than they initially anticipated. 

The company’s fundamentals have improved, but that’s not the only catalyst supporting the recent share price surge. Yet again, Bed Bath & Beyond can also thank the Reddit army for buying up shares. This year alone, BBBY is up 81%.

Shares of BBBY closed at $32.64 on Thursday 

Downers

TPG Pace Beneficial Finance Corp(TPGY) — which we covered earlier this year — is a special purpose acquisition company (SPAC) that entered an agreement to merge with EVBox, an electric vehicle charging infrastructure company based in Amsterdam. 

That was December 2020. Seven months later, the deal still hasn’t closed.

In May, TPGY officially notified investors that EVBox is taking longer than expected to complete an audit of its FY20 financials. Who knows what the hold-up is, but a delay is not a good sign. 

On June 1, TPGY released another official announcement, which stated that the companies had agreed to extend the original outside date from June 8, 2021 to August 6, 2021. If the deal still hasn’t closed by then, either company is free to terminate the agreement. In other words, the proposed business combination could fall apart. 

In February, TPGY traded for over $30 a share. Yesterday, it closed at $13.00. 

This is a prime example of “deal risk.” 

Xometry Inc(XMTR) is an on-demand industrial parts marketplace based in Gaithersburg, Maryland. As a marketplace, Xometry connects buyers — such as engineers and procurement executives from automotive, robotics, aerospace, and defense firms — with over 200,000 manufacturers. 

On Wednesday, the company debuted on the Nasdaq; it priced the initial share issuance at $44 a share. By the end of the day, XMTR was up 99% from its offer price, closing at $87.39. An incredible day for the company and its early investors. 

However, if you invested at the peak, you’re in a sour mood this morning. XMTR came tumbling back down the mountain to close at $65.23 on Thursday — a healthy 25% fall. 

This is a prime example of “IPO risk.”

Cel-Sci Corporation (CVM) is a biotechnology company that researches and develops immunotherapy products for the treatment of cancer, autoimmune and infectious diseases.

An admirable cause, indeed. But investors want results. 

Viable results. 

On Monday, Cel-Sci announced the results of its phase 3 clinical trial of an immunotherapy candidate. The goal was to improve the survival rates of head and neck cancer patients by including Cel-Sci’s Multikine treatment in the standard care process. 

Per the company’s press release, “the study did not achieve its primary endpoint of a 10% improvement in overall survival.”

While Cel-Sci intended to seek FDA approval anyway, the market didn’t take too kindly to the news.

Shares of CVM fell from $26.90 at the day’s open to $11.00 after the news hit. On Thursday, shares closed at $8.65 — a 67.6% decline.

Welcome to the fourth edition of Market Movers, our coverage of companies making big splashes in the stock market. 

We’ve updated the nomenclature of our Market Movers segment. To avoid misrepresenting a company’s value, we’ve replaced “winners” and “losers” with “uppers” and “downers.” The former set of labels unintentionally implied that certain stocks were either good or bad investments, but that’s not always the case. Winners could be overpriced while losers could represent bargains. 

“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures. 

Uppers

PLBY Group (PLBY), formerly known as Playboy Enterprises, is out to prove that sex still sells. The legacy print magazine company has transformed into a global consumer products brand with an emphasis on apparel and sexual wellness.

PLBY is up 171% since February, when its business combination with Mountain Crest Acquisition Corp closed and the stock started trading on the Nasdaq.

Why are investors so excited about Playboy? 

For starters, the company’s FY20 revenue shot up 89% year-over-year to $148 million. More recently, Playboy announced a partnership with Nifty Gateway, an online NFT marketplace. Although Playboy stopped printing physical copies of its titillating magazine last March, the company still has a deep portfolio of photographs — which it plans to monetize through non-fungible tokens, or NFTs. 

PLBY Group took advantage of its rocketing share price by issuing more shares at $46 per share. While this helped the company raise over $200 million, the issuance dilutes shareholder value, which drove the company’s share price down. 

Shares of PLBY closed at $36.10 on Thursday.

RAPT Therapuetics, Inc. (RAPT) is a biopharmaceutical company that focuses on oncology and inflammatory diseases. 

Shares of RAPT skyrocketed by 37% on Monday. Why? 

Because the company announced positive topline results from its clinical trial of RPT193 — an oral treatment for atopic dermatitis (AD). The treatment produced marked improvements relative to the placebo group. RPT193, which is intended to be a therapeutic alternative to injectable drugs, will now proceed to a phase 2b study.

Coincidentally, RAPT announced an upcoming issuance of $125 million of common stock, resulting in a pullback of the company’s share price. 

Shares of RAPT closed at $33.40 on Thursday.

Restoration Hardware Holdings, Inc (RH) is an upscale home-furnishings company based in California. Unlike the majority of companies, RH thrived during the pandemic, as affluent customers upped their coffee table supply and added decorative accents (like these four-figure sculptures) to their homes. 

In 2020 alone, the share price of RH appreciated by 109%. 

The story hasn’t changed this year. Last week, RH released Q1 earnings — and operations are still booming. RH generated $861 million of revenue in the first quarter of 2021 compared to $483 million in 1Q20. The company’s EPS landed at $4.89 — compared to $1.27 last year. These surprises drove RH to an all-time high of $733.05.

Shares of RH have since pulled back from their high after the Q1 announcement, closing at $656.55 on Thursday. That’s still good for a 48.5% YTD return. 

Downers

Sunrun Inc. (RUN) is a provider of residential solar panels and home batteries and is based in San Francisco, California. Renewable-energy sources like solar lit a fire in the bellies of investors last year. 

However, in 2021, investors lost some of their appetites. 

After peaking at a hair under $101 in January, RUN receded all the way back to $37.42 in May, before rebounding over the last month. Beyond a widespread sell-off to capture gains, there are also market concerns around rising interest rates and supply chain shortages. However, Sunrun management expressed that its supply chain is insulated from bottlenecks hampering other solar companies. 

In positive news, Morgan Stanley raised its price target for Sunrun from $86 to $91 on Wednesday, which gave the share price a nice boost. The bullishness doesn’t stop there — 15 of 17 analysts rate RUN as a Buy.

Shares of RUN closed at $52.16 on Thursday. 

Vertex Pharmaceuticals, Inc (VRTX) is a biopharmaceutical company based in Boston, Massachusetts. Unlike RAPT Therapeutics, Vertex has not had much success in its clinical trials lately. 

In October, Vertex halted its development of an experimental therapy that was intended to treat Alpha-1 antitrypsinase deficiency (AATD), which can cause lung and liver disease.

Last week, Vertex faced yet another setback when a separate treatment for people with AATD fell short too. 

Investors aren’t too pleased. Shares of VRTX have steadily declined 38% from its 52-week high of $303 last July. However, analysts are still optimistic that VRTX will bounce back thanks to its lucrative cystic fibrosis business. 

Maybe third time’s the charm?

Shares of VRTX closed at $188.36 on Thursday.

Kinaxis (KXSCF) is a supply chain management and sales and operation planning software company based in Ottawa, Ontario. Although the pandemic wasn’t kind to Kinaxis, it also wasn’t mean — from a performance perspective. 

When the company reported Q4 results in March, Kinaxis’s revenue actually increased by roughly $5 million (or 9%) year-over-year. However, Kinaxis’s first operating loss in its eight-year history as a publicly traded company prompted investors to lose confidence. That week, shares of KXSCF dropped almost 26%. 

But there’s good news. Analysts love the stock. Barron’s even featured the company in its last issue, which may have prompted this week’s 2.6% gain. 

Shares of KXSCF closed at $123.94 on Thursday.

These reports are free.

You know what else is free?

Sharing this newsletter.

Share

Welcome to the third edition of Market Movers, our coverage of major stock winners and losers. 

“Winners” represent stocks that recently experienced upward price momentum, while “losers” have faced downward price pressures. Note: the companies we highlight aren’t necessarily the biggest movers from a return standpoint. 

Winners

AMC Entertainment Holdings Inc. (AMC) — which we issued a report for on March 26 — is the world’s largest theater operator. 

Considering the pandemic brought the film industry to a screeching halt, you wouldn’t think a theater operator would be able to boast triple-digit share price appreciation — even with society returning to a semblance of normal. 

Yet, that’s the case; shares of AMC are up 470% over the last month. A decent box office weekend spurred retail investors to scurry for more shares. 

All the while, AMC’s first-quarter revenue came in at $148.3 million, which represents an 84.2% decline compared to the first quarter of 2020. On top of that, AMC issued more shares, which generally hurts a share price. But meme stocks don’t play by the rules of logic, so AMC (and its shareholders) are major winners right now. 

If you can believe it, shares of AMC closed at $51.34 on Thursday.

Vertex Energy, Inc. (VTNR) is a specialty refiner of alternative feedstocks and marketer of high-purity petroleum products. With an annual processing capacity of over 115 million gallons, Vertex is one of the largest processors of used motor oil in the U.S. 

So far this year, VTNR is up 1,219%.

Woof.

Vertex shares jumped after the company announced that it will acquire Shell’s Mobile, Alabama refinery. On top of that, an HC Wainwright analyst reiterated a Buy rating for VTNR, increasing a price target to $25 — which is 166% higher than what VTNR closed at on Thursday ($9.39).

eMagin Corporation (EMAN) manufactures organic light emitting diode (OLED) technology, providing microdisplays to military, medical, commercial, and consumer markets. For instance, its microdisplays are incorporated in night vision goggles and head-mounted display systems for the U.S. military.

eMagin recently reported a net loss of $7.4 million for Q1 (although $7.2 million of which was a non-cash expense related to the change in fair value of a warrant liability). So, why is EMAN up 112% this year then? 

Outside of an HC Wainwright analyst issuing a bullish rating for EMAN a couple of weeks ago, the stock’s momentum doesn’t appear to be news-related. Shares of EMAN closed at $3.50 on Thursday. 

Losers

Castor Maritime Inc. (CTRM) provides seaborne transportation services for dry bulk cargo (e.g. coal, grains, fertilizers, etc.) via three Panamax vessels. 

Well, man the lifeboats, because Castor stock is capsizing. Over the last three months, CTRM is down 55%. 

Why?

The Baltic Exchange Dry Index (BDI) has dropped to 2,530, considerably down from its May 5 peak of 3,266. In case you’re unfamiliar with the shipping industry, the BDI is a leading indicator of global demand for commodities and raw materials. It’s compiled based on the average shipping costs of four sizes of ships (Capemax, Panamax, Handymax, Handysize). A declining index indicates less demand for shipping dry bulk goods, which would mean shipping companies like Castor make less money. 

Shares of CTRM closed at $3.53 on Thursday. 

HP Inc. (HPQ)represents the PC and printer side of Hewlett-Packard, which split into two companies in 2015.  

HP continues to smash earnings estimates; for its latest quarter, HP beat its Q2 earnings estimates by 4.5%, which seems mild compared to its Q1 surprise of 39.4%. Suffice to say, HP is crushing it...so why are shares down 14% over the last month?

Well, HP became the latest company to reference the global semiconductor shortage in its earnings release, as HP expects the limited supply of computer chips to impact its ability to meet demand. By some estimates, the shortage could extend into next year...and maybe beyond. 

So, despite its recent success, investors don’t appear to be very bullish about HP’s near future. 

Shares of HPQ closed at $29.93 on Thursday. 

fuboTV (FUBO) provides streaming TV services with an emphasis on sports and competes with the likes of YouTube, Hulu Live TV, and Sling.

Depending on your perspective, fubo is either a big winner or a big loser. Over the last year, shares of FUBO have appreciated 149%. But compared to its 52-week high, shares are down 56%. 

So, what gives? 

Like HP, fuboTV is a semi-winner. 

Glass-half-full perspective: 

• fuboTV more than doubled its subscriber base from 1Q20 to 1Q21; the company had 590,961 subscribers as of March 31.

• fuboTV’s 1Q21 revenue increased 105% to $119.7 million compared to the prior year period.

• fuboTV’s advertising revenue was $12.6 million in 1Q21, which was a 206% year-over-year increase. 

Glass-half-empty perspective:

• fuboTV spends a lot of money on subscriber-related expenses — $113.3 million in 1Q21 (or ~95% of the company’s revenue. That doesn’t even account for a slew of other expenses including broadcasting and transmission, sales and marketing, tech and development, and G&A.

• More to that point, fuboTV is nowhere near profitable. The company had a net loss of $70.1 million in the first quarter of this year alone. 

But, then again, losses aren’t unusual for a company that’s trying to scale its operations by investing in potential revenue sources. (For instance, fubo is incorporating sports betting into its platform.) Seven out of eight analysts rate FUBO as a buy with pretty lofty price targets, so Wall Street likes what the company is doing. 

Shares of FUBO closed at $27.18 on Thursday.

Sharing is caring

If you’re enjoying our reports, why not sure them?

Share Due Diligence

Welcome to the second edition of Market Movers, our coverage of major stock winners and losers. 

“Winners” represent stocks that recently experienced upward price momentum, while “losers” have faced downward price pressures. Note: the companies we highlight aren’t necessarily the biggest movers from a return standpoint. 

Winners

The Kraft Heinz Company (KHC) is a familiar name in the food industry. Beyond its namesake, Kraft Heinz owns a sizable portfolio of American food brands, including Oscar Mayer, Velveeta, and Philadelphia. 

In recent years, KHC resembled a dumpster fire. The company curtailed investments in key brands and performance suffered. The downward trend culminated when KHC recognized a $15.4 billion write-down on several key operations in February 2019.

From 2017 to 2020, shares of KHC dropped from the upper $90s to…$22. 

Since hiring CEO Miguel Patricio in July 2019, Kraft Heinz has reversed course — to the point where Warren Buffet voiced a positive opinion of KHC (which always helps). Plus, the company experienced sales bumps across all business segments in the first quarter of 2021. Shares of KHC closed at $43.87 on May 20. 

Evolve Transition Infrastructure LP(SNMP), which used to be named Sanchez Midstream before rebranding, is a smaller player in the energy industry. The company owns natural gas gathering systems, pipelines, and processing facilities in South Texas — but it’s pursuing investments in cleaner energy projects. 

Why is Evolve a winner?

On Monday, Evolve announced an agreement with Nuvve Holding Corp. (NVVE) to form a new sustainable infrastructure joint venture (JV) under the name Levo Mobility. Nuvve’s proprietary vehicle-to-grid (V2G) platform will be used to outfit fleets of zero-emission electric school buses across school districts all over the country. Evolve and its investors will contribute $750 million of capital to this project.

Shares of SNMP closed at $0.92 on May 20 — up from $0.59 at the beginning of the year. 

Fossil Group, Inc. (FOSL) is an American fashion designer and manufacturer with a well-known portfolio of apparel brands — such as Kate Spade and Puma. 

Well, Fossil is only a semi-winner. 

From a return standpoint, Fossil is having a helluva year; FOSL shares are up 36.7% as of May 20. From a revenue and earnings standpoint, it’s been a struggle. Since 2015, Fossil’s revenues have consistently trended downward. So, shareholders have been major winners — but who knows if that’ll remain true if Fossil earnings continue to dip. 

Shares of FOSL closed at $11.85 on May 20.

Losers

PureCycle Technologies Inc. (PCT) provides recycling services. Its patented recycling process separates color, odor, and contaminants from plastic waste feedstock to transform it into ultra-pure recycled polypropylene.

As lovely and good-natured as that sounds, the stock plummeted earlier this month after a well-known short-seller, Heidenburg Research, released its latest report titled, “PureCycle: The Latest Zero-Revenue ESG SPAC Charade, Sponsored By The Worst Of Wall Street.” 

Yikes.

The company issued a brief response shortly after, calling the report a tactic to drive down PCT shares. But the damage had already been done. PCT shares have gradually declined in value ever since.

Shares of PCT closed at $15.85 on May 20, representing a 56% decline from its 52-week high. That said, it’s been on the rise since the beginning of the week — so keep an eye on PCT.

Flora Growth Corp (FLGC) is a cannabis company that cultivates and supplies medicinal-grade cannabis oils to various distributors. Its also the latest cannabis company to pursue an IPO, which brought in $16.7 million of gross proceeds for the company. 

That’s great for Flora Growth because it’s definitely not generating the cash flow necessary to sustain operations. According to the company’s prospectus, Flora Growth only generated $106,000 of revenue last year; its net loss was $14.3 million. Since listing at $5.00 per share, FLGC has dipped 33% to $3.36.

It’s a prime example that investing in IPOs can be quite risky. 

CleanSpark Inc. (CLSK) is a software developer in the energy efficiency space. More recently, they’ve added bitcoin mining solutions to their arsenal with the hope of tackling the digital asset’s energy consumption problems.

Depending on your view of Bitcoin, that’s either encouraging or concerning. Regardless, the company has attracted a ton of attention from investors — including short-seller Culper Research, which issued a report questioning ClearSpark’s integrity. The company responded, helping the stock recover some, but it’s still significantly down from its YTD high of $42.60.

Like Fossil, CleanSpark is a semi-winner though. Over the last year, CLSK has appreciated by 563%. In more recent news, the company announced the purchase of 2,400 new rigs, which are expected to improve mining efficiency.

Shares of CLSK closed at $15.98 on May 20.

Are you eying a particular stock?

While this newsletter is in its infancy, we’re taking your stock suggestions into account. Once you subscribe, you can recommend a company for review (here’s the link). Our selections are based on demand, but we’ll at least consider every submission.

Sign up now so you don’t miss our reports.

Welcome to the first edition of Market Movers, the Due Diligence team’s periodic coverage of major stock winners and losers. 

“Winners” represent stocks that recently experienced upward price momentum, while “losers” have faced downward price pressures. Note: the companies we highlight aren’t necessarily the biggest gainers or decliners from a return standpoint. Price and return data are as of 4/29/21.

Winners

Casper Sleep Inc. (CSPR) is an eCommerce company that’s obsessed with sleep. So much so that Casper dubbed itself the “Sleep Company.” In case you couldn’t infer, Casper sells beds, pillows, and other sleep-related products. 

• Last close price: $8.65

• YTD return: 40.7%

CSPR went public last February, which was obviously rough timing. However, in 2021, shares of CSPR are up 40.7%. More recently, investor demand for CSPR surged after a Wedbush analyst issued an “Overweight” rating, representing his first bullish outlook.

Esports Entertainment Group (GMBL) is an esports (i.e. competitive gaming) and online gambling company. 

• Last close price: $12.30

• YTD return: 93.7%

GMBL has picked up steam in 2021, appreciating 93.7% so far this year. The company has formed strategic partnerships with NFL teams (such as the Denver Broncos and New England Patriots). Plus, it raised $30 million through a direct offering on Nasdaq back in February. On Tuesday, the momentum continued when GMBL got a major boost from H.C. Wainwright’s initial “Buy” rating and price target of $20. 

Novavax, Inc.(NVAX) is a Maryland-based vaccine development company. Unless you live under a rock, you know it’s a good time to be in the vaccine development business.

• Last close price: $237.53

• YTD return: 113.0%

If you owned Novavax prior to 2021, congratulations — because its share price has more than doubled this year. That momentum continued on Tuesday when NVAX shares jumped out of the gym after President Biden mentioned the company’s COVID-19 vaccine is nearing emergency-use authorization. 

Losers

Qell Acquisition Corp (QELL) is a publicly traded special purpose acquisition company (SPAC), which Due Diligence readers should be familiar with. Qell is set to merge with Lilium, an aviation startup based in Germany that creates electric-powered vertical takeoff and landing (eVTOL) aircraft. This market is still very much in its infancy with a lot of hurdles ahead (here’s a breakdown). 

• Last close price: $9.91

• YTD return: -19.4%

Although it’ll be a reverse merger (meaning Lilium will become the publicly traded entity), shares of QELL are down nearly 20% so far this year. The driver appears to be a mix of (1) declining investor sentiment since the eVTOL industry as a whole faces major challenges and (2) open investigations by Monteverde & Associates PC and Rigrodsky Law, P.A. into whether QELL breached its fiduciary duties. 

Fortuna Silver Mines(FSM) is a Canadian silver mining company with two active mines (in Peru and Mexico) and another under construction in Argentina. 

• Last close price: $6.06

• YTD return: -26.5%

It’s been a rough year for FSM, as its share price has plummeted by 26.5% — despite relatively stable silver prices. However, it’s been an even rougher week. Earlier this week, the company announced the acquisition of Roxgold, a Canadian precious metals miner, for an estimated 40% premium. As is common with acquisitions, investors sold FSM and flocked to Roxgold, leading to a 15% early morning dip for Fortuna on Monday. 

Tesla, Inc. (TSLA) hardly needs an introduction. The electric vehicle and clean energy company has maintained a steady presence in headlines (and investor portfolios) for years now. In 2020 alone, shares of TSLA rose more than 740%. So, why does Tesla find itself in our “Losers” section?

• Last close price: $677.00

• YTD return: -4.06%

Well, TSLA is down 4.06% in 2021 — and expectations for the EV-maker are stratospheric. The latest share price decline is a result of mixed analyst ratings, which came about after the company’s latest operating profit fell short of projections. Tesla beat earnings estimates, but the operating profit miss supplied fresh ammunition to the company’s haters. Goes to show, having incredibly high expectations across the board leaves very little room for error.

Are you eying a particular stock?

While this newsletter is in its infancy, we’re taking your stock suggestions into account. Once you subscribe, you can recommend a company for review (here’s the link). Our selections are based on demand, but we’ll at least consider every submission.

Sign up now so you don’t miss our reports.

Subscribe now