On January 1st, I outlined four small-cap stocks with the potential to be winners in 2015. You can find the article here. In an effort to track how the four stocks perform in 2015, I will publish the quarterly stock performance at the end of each quarter. I will also provide commentary on any changes with the companies that might affect the investment thesis.
Overall performance of the 4 small cap stocks for Q1 = +11.54%
Price at time of article: $50.72
Price End of Q1: $75.71
% Gain (Loss): +49.27%
With the 1st quarter of 2015 in the books, Ambarella is the best performer of the four stocks. Unfortunately it is the only one on the list that I didn’t buy. Wearable cameras remain a hot technology and, during Q1, the cameras gained even more attention as a tool for law enforcement. Ambarella’s technology is dominating this space. Ambarella’s technology is found in both GoPro (GPRO) cameras and Digital Ally (DGLY) cameras. Even with the run in share price, Ambarella investors are only paying a 25 forward multiple for 219% earnings growth and 61% revenue growth. Ambarella continues to provide a margin of safety with $207 million in cash, $0 debt and a current ratio of 6.06. The strong story remains intact for Ambarella.
Methode Electronics (MEI)
Price at time of article: $36.51
Price End of Q1: $47.04
% Gain (Loss): +28.84%
Methode Electronics is the 2nd best performer so far this year. A significant portion of Methode’s business is tied to the automotive industry and a recent poor quarterly report by General Motors (GM) has caused Methode to pull back a bit, but this seems an overreaction as the company continues to execute, improving margins by 34% since January. Investors in Methode are only paying a 16 forward multiple for 85% earnings growth. I remain long Methode as I like the fundamentals, management execution, and exciting products in the pipeline.
Price at time of article: $9.74
Price End of Q1: $10.40
% Gain (Loss): +6.77%
MiMedx stock has experienced the most modest gains so far this year but considering the S&P 500 was flat in Q1, it still outperformed the larger equities. A lot has happened with MiMedx since January (you can read about it here) but none of it has affected management’s outlook for the rest of 2015, as they have reiterated their strong guidance. MiMedx full-year revenue of $118.2 million doubled 2013 revenue and grew 120% quarter over quarter. MiMedx CEO Pete Petit has a track record of building up small biotech companies and selling them for a premium. As long as this company continues to perform, it remains a target for a larger competitor, and it will remain in my portfolio.
Price at time of article: $22.55
Price End of Q1: $13.82
% Gain (Loss): –(38.72%)
TubeMogul has been the only disappointment so far this year. It was crushed after it reported a great quarter but guided significantly lower than Wall Street expected. TubeMogul explained the significantly lowered guidance was due to quicker than expected shift in the product mix to a lower revenue but higher margin recurring product. TubeMogul stated that this was ultimately a good thing for the long-term health of the company but Wall Street didn’t agree and they punished the stock. TubeMogul also mentioned FX headwinds as a contributing factor to their lower revenue guidance. In addition to all of this, TUBE experienced a lock-up expiration on January 14th that also took the stock price down. That’s a lot for a stock to endure in one quarter.
For full disclosure, I first bought this stock on July 18, 2014 which was the day of the IPO:
Despite that fact that I still liked it, I announced that I was selling some ahead of the lock-up, just to be prudent and protect a nice gain:
I still hold a 1/2 position in TubeMogul. I still like the long-term prospects of this company due to the fact that it is focused on brand advertising rather than direct response advertising. I’m long for now, but further guidance reductions will cause me to sell my remaining position.
Disclosure: I am long MEI, MDXG, and TUBE