Q1 2024 Recap
Quarterly recap on hits and misses during Q1 2024
Being my first quarterly recap, there will be a bit of a preamble about why I’m doing one and what I hope to achieve, so please bear with me.
Along with my quarterly interest lists, my annual “report card” has been one of the more popular features with clients and subscribers, so hopefully a quarterly version will prove helpful as well.
My purpose in starting a quarterly recap is somewhat two-fold: first, to keep me focused on doing the thing I should be doing, which is finding, picking, and working on ideas that hopefully will be of some value to my subscriber base. Too often people tend to focus (me included) on the things that are working while either diminishing or overlooking the things that are not, and here I will attempt to address both. I do try to figure out where my thesis goes astray on ideas that don’t work out, and whether or not it’s due to market forces in general or if it’s something specific to the stock itself which I may have missed. Doing a quarterly recap should help me refine my process and hopefully provide more useful ideas.
A second reason would be to produce something helpful for subscribers so they know whether or not I’m living up to what I promised to provide in this Substack when they first signed up. In my Substack’s About section I tell folks I aim to deliver 10-15 new ideas a year, a certain number of “quick take” ideas, and an uncertain number of “updates” to older ideas as I generally see fit to comment. I’m hoping those numbers will be minimums, but I’ve been around the block enough times to know that ideas don’t always arrive on schedule, and I’m very loathe to put out ideas just for the sake of putting out ideas. So better to under-promise and over-deliver than the other way around.
Before continuing to the heart of the recap, the standard disclaimer holds; nothing here is investment advice, and I make absolutely ZERO guarantees about future results. No matter how often I may comment on how well or poorly things have behaved overall, that doesn’t mean the next quarter things will behave similarly. This most recent quarter is simply a three-month snapshot on a handful of names that should always be considered in the broader context of an overall portfolio. As always, don’t take my word for anything, consult with your own financial professional, and do your own due diligence.
Having said that, the first quarter was generally successful from an idea origination standpoint; I delivered 4 new regular ideas and 7 “quick take” ideas to subscribers during the quarter for a total of 11 new names, and updated half a dozen or so older ideas. In general I tend to find more and better ideas when the market is rising and frothy, and this quarter proved to be no exception. Here are a few comments on the 4 new names during the quarter, 3 of which have already worked pretty well. In general, I’m not searching for ideas that will provide immediate satisfaction, but it does occasionally happen.
In a new idea on J-Long Group (JL) that I put out in the middle of the trading day (which is unusual for me), I pointed out that the potential float and share count were actually much higher due to an additional 9M shares being registered on the IPO which may have already been sold. The chat boards and twittersphere had wrongly concluded the float to be around 2M shares and were therefore gunning it while the true number was closer to 11M. Over the next couple of days, the stock briefly spiked up through $20 before crashing down to the current level of around $1, or down around 94% since first mention. All inside of a couple of days, which is just wild.
Another new idea was on Integral Ad Science IAS, a provider of digital advertising solutions. A couple of weeks after presenting the idea, the company announced disappointing first quarter and 2024 guidance during their Q4 earnings report and conference call. The stock traded down over 40% on the news, and now sits a bit above $9, down over 40% from the $16 level where I first pointed it out.
I also took a look at Vegas-based robotics manufacturer Richtech Robotics (RR). After pointing out the stock close to $8 it subsequently declined to the current level of around $1.50 and is now down over 80% since my first mention.
The fourth idea, Marqeta MQ, is down 4% from where I originally pointed it out, so it’s basically flat. Since they are closely tied to their biggest customer Block Inc. (SQ), shares of MQ rose following SQ’s Q4 earnings release in the hope that they would stand to benefit from that company’s outperformance. Sadly, their own release was very underwhelming, and the stock gave up all of its gains and then some in the days following the release.
I’m not going to comment on my “quick takes” here as each name remains early in my thought process and I’m not sure whether or not I will continue following them in the future. To compare to last quarter, of the 4 similar names I added in December I am removing a couple that are down a bunch this time around, will comment on one of the names which is up a bunch below, and am undecided on what to do with the last one which is up, but not as much. In general, rising prices tend to increase my interest.
Performance-wise, all of the 24 older ideas (these do not include the 4 new ideas and the 7 “quick take” ideas) were down around an average of 14% during the quarter (my slightly irregular quarter), and if you have a mind to do so, you can compare that to the performance of whatever average you wish (my stuff tends to be more in tune with the Russell 2000 (IWM is the ETF) than either the DOW or S&P, but that’s up to you). The best performing older idea during the quarter was AEHR, down around 60% or so as I type this out, while shares of CVNA are up close to 65% during the quarter, so quite the wide disparity. I had considered removing AEHR from my list in December but thought there may yet be another leg down for the stock, which proved to be correct.
The older ideas, by the way, are the 24 names that were on my 12/20/2023 interest list (and includes both regular ideas and my quick takes), and the performance I am referring to is simply taking the closing price of each of the 24 names on March 26th and subtracting that from the closing price on December 20th, 2023 and dividing that by the closing price on December 20th, 2023 and summing it all 24 numbers together and then dividing the sum by 24. As I mention elsewhere, this is NOT a compliant way to measure financial performance, and I do not hold it out to be so. It is simply for illustrative purposes only. Why do I use December 20th? The date of my last list, and so I don’t miss any stock movements in between these recaps. The next recap will compare to March 27th, which will be tomorrow’s interest list.
New names I typically don’t include due to their being recent, but for kicks, if you take a look at the 11 new names I introduced during the quarter the overall performance doesn’t really change. As a group those were down 13% or so on average (biggest loser was down 94%, while one of my “quick takes” is up 34%) ,so there might be some movement were you to combine and round out the entire list, but not all that much. Once again, I tend to ignore new names, but this quarter was a bit unusual due to the immediate outperformance on a handful of ideas.
The interest list update I plan to publish tomorrow will show the actual chart with dates things were added and the closing prices, but sadly will be for paid subscribers only, so if you care for the full experience, please feel free to subscribe here.
Finally, here are a few comments on some hits and misses from comments I made during the quarter, along with some comments I didn’t make…
RCM - Though removed from my interest list in December, I commented on the RCM go-private offer in February and the unlikelihood that there would be further offers out there. For some reason the stock traded for a $1.50 premium over the offering price, which was ludicrous in my book and was likely an opportunity were people inclined to pursue it. The stock has since given back those gains and retreated to under the offer price.
CALX - My thoughts on CALX included the idea that post-earnings disappointments did not appear to be believed by the investor community, which was likely to change. The company’s prior disappointment was completely recovered by the time of their next earnings release, which proved once again to be a disappointment. I am holding out some hope that this next earnings announcement will be treated as the disappointment that it is. Shares were down over 20% during the quarter.
HSAI – While most of the news surrounding these folks was related to their inclusion on the Defense Department’s list of Chinese proxy companies, they did release some earnings during the quarter as well. While Q4 revenues were up nicely year over year, the company is experiencing something of a pricing crunch on the units that they do sell. A year ago they were receiving almost $2,000 per LIDAR shipped, while this year the number was closer to $900. That, naturally, led to an even large net loss year over year as the decline in costs was not as severe as the decline in pricing, and throw in the slowdown on EV’s in general, and things are looking a tad grim for this Chinese outfit. Shares were down close to 50% in the quarter.
CVNA – This name has been on my list since shortly after coming public and will likely remain on my list until bankruptcy claims it, which I still feel is a distinct possibility. Its inclusion will likely mess up my performance figures for the foreseeable future, for good or bad (and this quarter it hurts a bunch), but that’s just the way it will have to be. The fact that various momentum outfits and banking analysts opt to champion the name after being totally wrong not that long ago only adds to the interest. This name was up 60%+ during the quarter.
STRL – I was thinking of adding some comments after STRL announced their Q4 results and the stock was up around 30% on the news, but it remains a name I continue monitoring and which I spelled out in my “quick take” back in October 2023. While the company’s backlog is still very strong, not all contracts are the same; there is a shift happening away from the higher margin E-Infrastructure contracts to the lower margin Transportation contracts. E-Infrastructure revenues were down year over year, and that was the driving force of their revenue and earning gains. With the stock at extended highs and a switch to lower margin work coming, this could be setting up for a disappointment in the next couple of quarters.
ARLO – I’m still putting some thoughts together and will likely send out an update in the next month or so, but in short, I just don’t believe their numbers. From their supposed subscriber additions to their calculations for ARR and what they say their average monthly subscriber is paying, I just can’t make any of their numbers work, but at the moment, nobody seems to care. I will have more later, but the shares were higher by close to 40% during the quarter.
ISPR – How often do you see this scenario play itself out? A stock that has no right to be trading at its current price decides to offer some more shares for sale, and the only price the underwriter can find where anyone would be willing to buy those shares is down like 40% from where it most recently closed. That’s the story of ISPR in a nutshell, and it lead to a 50% decline for the stock in the quarter.
Anyways, that’s a recap of what happened during the quarter. Though the overall market is breaking out to new highs on a weekly basis my little portfolio of ideas performed reasonably well. There certainly will be quarters when this note will be much more painful and humbling to write, but I will continue to do my best to bring you new ideas regardless of the overall market.
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