As earnings reports started rolling in for the third quarter, we found that all of our companies in the Long Term Growth model continued to execute well. However, higher expectations and cautious guidance have caused all but one of our stocks to fall significantly following the earnings reports. Below is quick recap on Q3 results so far and our take on them.
AthenaHealth (ATHN) reported 26% revenue growth on a year-over-year basis as of November 1. However, CEO Jonathan Bush has set a 30% per annum growth target. Therefore, Wall Street analysts were disappointed.
Our take is that a significant addition of new practitioners during the quarter and a major deal with Health Management Associates (HMA) have yet to show up in the revenue stream. We believe AthenaHealth continues to have a bright outlook and the current stock price offers an attractive entry point.
Our flagship holding, robotics maker iRobot (IRBT), had a great Q3 report with home robots revenue growing 33% on an annual basis for the quarter. However, its defense business deteriorated faster than expected and management is forecasting this business to continue sliding in the months ahead. That makes the whole company’s outlook flat for next year or so and the Street didn’t digest that news well.
This stock closed at $18.29 on November 9 with a market cap of $505 million. With net assets at more than half of the market cap, right now in our opinion IRBT is a great value stock in addition to a great growth stock. We continue to believe in this story and intend to hold the stock.
Our 3D printing companies, 3D Systems (DDD) and Stratatsys (SSYS), also came out with great results. The stock of 3D Systems jumped 15%+ after the company’s earnings announcement on October 25, though DDD has given up some of its gains since then.
At this point, it seems like 3D Systems is executing better on its aggressive acquisition-fueled growth strategy while Stratasys has more work to do to consummate its merger with Israel based Objet. Nevertheless, we continue to believe in the long term growth of this space and see no reason to change our holdings.
MercadoLibre (MELI) reported weaker-than-expected earnings. Even with Q3 revenue growth of 19% in US dollars and 37% in local currency terms, MELI missed street expectations by a few points. The result was a double- digit drop in the stock price following the earnings.
In our opinion, the company’s growth story remains intact and management is doing the right things to continue to further grow the business. Based on such criteria, we continue to hold the stock.
The investments discussed are held in client accounts as of October 31. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
