Market Movers (Issue #6)
Our coverage of major stock movements.
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.
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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.
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