Updates on two stocks that I am adding today
Since it is very difficult to give a detailed explanation on twitter on the thinking and reasoning behind additions to the stocks in my portfolio, I have decided to update in my blog.
These are two companies that I have covered in my blog before. If you need a head start, I will attach the link below.
Usually I like to add in bulk during general market decline or corrections but here and there I do get attractive entry points in the stocks or companies I own.
Moving forward, I have told myself that I am not going to buy new companies unless it is very compelling. I need to restrain myself from getting distracted from fintwit. Fear of missing out is the worst enemy for long term investing. Moving forward my goal would be to add on the companies which are already in my portfolio. I have about 50 of them, so every month there could be adding or eliminating opportunities in any one of them. If you can exit a position before it implodes, I take that as also a positive opportunity. Successful portfolio management consists of creating long term wealth by compounding your wealth and minimizing losses.
These two companies recently released their earnings. I usually don’t listen to earning calls but do review their headline metrics. As I have already done a deep dive before buying the stocks and afterwards I just like to verify if they are executing or not but again I don’t pass judgment unless the results are egregiously bad.
Further, my strategy works for me because I use mathematics in my favor. I don’t overweight on any stocks. The idea here is you want to end up having some money rather than the possibility of ending up having no money. If you are overweight on a stock, there is always a possibility that the company fundamentals can deteriorate overnight and they have bad earnings. As a retail investor, I am the last one to get the opportunity to exit. Sunk cost bias kicks in and I try to justify holding that position and I might keep adding. To avoid those situations, every stocks I own is not overweight. So I can easily toss them out of my portfolio if they are doing poorly.
Without further ado
First company is Shockwave Medical (SWAV)
If you haven’t heard about this company, please click the link below which will give you a succinct overview of the company.
Back on February 28, 2021, I wrote about SWAV medical. It was trading at around 116 dollars a share and went up to an all time high of 203. Now it back down to 172/share despite reporting stellar earnings. This is related to partial COVID 19 lock down in some parts of the country.
Second Quarter 2021 Financial Results
Rev 55.9 million 444% QOQ
Gross profit 46 million up from 6.7 million
Gross margin 82% up from 65%
Operating expenses 46.2 million up from 24.7 million due to salesforce expansion.
Net loss 0.4 million decreased from 18.1 million
Cash: 174 million
2021 Financial Guidance
Full year 2021: 218 million to 223 million upped from 195 to 205 million
Why I am adding
Back in February when I wrote about this stock, its market cap was 4 B and was trading around Rev/Sales of NTM of 35. Now at around 6.64 B it is trading around Rev/Sales of 2021 of 30.
Second company is Inari Medical
I wrote about Inari medical (NARI) back on April 5, 2021. Please click the link below if you would like to know about the company or refresh your thesis on this company and the problem it is trying to solve.
After I wrote about this company the stock hasn’t moved much. It was trading at around 106 dollars and now it is down to 84 dollars but the company’s fundamentals have gotten stronger.
As you can see from price actions the stock is very volatile. I haven’t heard of any major deterioration in their business. The financials of the company can speak for itself. So stock may be just consolidating after a big move or maybe the market is fearing competition or COVID 19 lock down. If readers are aware of any such issues, please email me or put that down on comment sections for discussion.
I am always careful when adding to the companies. I never add too much and I never make any portfolio a big chunk of my portfolio. That is my foolish way of protecting my capital or loss.
Second Quarter 2021 Financial Results
Rev 63.5 million 150 QOQ
Gross profit 58.6 million up from 21.9 million
Gross margin 92.4% up from 86.3%
Operating expenses 54.5 million up from 22.5 million due to salesforce expansion.
Net income was 4.1 million compared to net loss of 3.8 million
Cash: 176 million
2021 Financial Guidance
Full year 2021: 250 million to 255 million upped from 240 to 250 million
Why am I adding?
Thesis is intact. Growth is torrid. Still have a huge runway of growth.
Astute readers may have noticed that both these companies have similar financial, revenue, gross margin and operating expense profile. Stunning. Yet SWAV is trading around 6.6 billion and NARI is trading around 4.4 billion. This may be because the TAM of NARI is half the TAM of SWAV. This is just my conjecture.
Back in April it was trading around 22 times 2021 earning and now it is trading around 17.6 times 2021 revenue.
Please manage your portfolio. Buy or add to these at your own risk. I was hesitant about doing this, but since many of you have directly messaged me and asked me if I would write about my thoughts and process.
Disclaimer:
The stocks mentioned in my newsletter are not intended to be a list of buy recommendations but rather some ideas for your watchlist. Perhaps they end up in your own portfolio after you conduct your own research and due diligence. Some of the stocks mentioned in my newsletters have smaller market capitalizations and therefore can be more volatile. I always encourage and strongly recommend everyone to do their own research and due diligence before buying any stocks mentioned in my newsletters. Please manage your portfolio and position sizing in accordance with your own risk tolerance, risk profile and investment objectives.
I can trade in and out of the securities mentioned in my newsletter at any time with or without any reasons and without any updates.