Conestoga Capital Advisors, the prominent asset management firm, has shared insights from its third-quarter 2024 investor letter. The letter reveals the firm’s analysis of recent market movements and stock performance, set against the backdrop of shifting macroeconomic conditions.
During its September meeting, the Federal Reserve made headlines by lowering the Federal Funds rate by 50 basis points. This decision came amid signs of weaker employment growth and moderate inflation, prompting hopes for an encouraging economic outlook among investors. Following the Fed's announcement, the stock market showed positive reactions, signifying rising optimism for what analysts term as a "soft landing" for the economy.
The stock market's response was notable, especially with the S&P 500 Index achieving record highs on September 26th. Meanwhile, the Russell 2000 Index posted gains over the quarter, yet it remains about 10% shy of its all-time peak. Conestoga’s composites also reflected this momentum: the Small Cap Composite saw noteworthy growth of 10.09% net, outperforming the Russell 2000 Growth Index's 8.41% return. Likewise, the SMid Cap Composite soared 12.94% net compared to the Russell 2500 Growth Index, which returned 6.99%. The Micro Cap Composite increased by 7.60% but fell short of the Russell Microcap Growth Index's 8.57%, and the Mid Cap Composite advanced 8.36% net, again surpassing the Russell Midcap Growth Index’s 6.54% return.
Switching gears to specific companies, the investor letter highlights notable stocks including Axon Enterprise, Inc. (NASDAQ:AXON). Known for its role as a technological leader in public safety, Axon reported impressive growth in the previous quarter. According to Conestoga, "AXON continues to see strong demand for its products and services, from Tasers to body cameras to the software supporting many public safety applications." The company demonstrated significant performance with revenue increases and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth. The order backlog surged by 41%, spotlighting Axon’s robustness amid fluctuated market dynamics.
On October 21, 2024, Axon’s stock closed at $443.98 per share, bringing its market capitalization to $34.19 billion. Over the past year, its shares have skyrocketed by 111.79%, making it one of the stand-out performers. Despite this successful growth narrative, Conestoga presents caution, highlighting its inclination toward AI-related investments, which they anticipate could yield greater returns. The firm emphasizes their belief in AI stocks as preferable investing avenues compared to more traditional stocks like Axon.
Similarly, another firm highlighted by Conestoga is Exponent, Inc. (NASDAQ:EXPO), specializing in scientific consulting across various technical disciplines. The firm registered its second consecutive quarter as market leader, with impressive earnings pushing its shares up by 31.09% over the past year. This performance aligns with their report indicating growth during the second quarter, with net income jumping from $25.7 million to $29.2 million compared to the previous year.
Exponent’s broadened market presence emphasizes its strong position within growth sectors, especially as it engages with advanced fields such as artificial intelligence, battery manufacturing, and wearables technologies. The company’s stock also received investor backing as it managed to stay relevant amid macroeconomic challenges, exhibiting resilience and adaptability.
Notably, Exponent is also striding forward with careful management and investment strategies, indicating the company's aim to leverage its expertise within expansive market applications.
Further showcasing diverse investment opportunities, the Conestoga report does not miss highlighting Mama’s Creations, Inc. (NASDAQ:MAMA), another company experiencing remarkable year-on-year growth of 101.56%. MAMA, known for producing fresh deli-prepared foods, closed at $7.71 per share with a market cap of approximately $292 million. The company has witnessed consistent growth since its transformation under CEO Adam Michaels, who joined the firm mid-2022. His leadership has evidently broadened the operational capacity of Mama’s Creations, allowing it to capture more market share and effectively address increasing consumer demand across its platform.
The prepared deli foods market is booming, with growth rates projected at 8-10% annually, making it one of the fastest-growing sectors within grocery. During the second quarter of fiscal 2025, Mama's Creations reported $28.4 million in revenue, reflecting a 14% increase from the previous year, demonstrating the company’s strong performance.
Conestoga Capital Advisors continues to monitor developments closely, making measured bets on stocks they believe will outperform as the economy evolves. Their Q3 investor letter has not only cataloged the performance of these leading stocks but also provided insights on market trends and expectations for the forthcoming period.
Analysts and investors remain forward-looking, with many eager to see how the confluence of technological advancements, changing consumer demands, and macroeconomic adjustments shape the investment landscapes of tomorrow.
