Weekender № 4: Innodata's AI Breakout & The Evolv Accounting Scandal

I hope you all had a fantastic Thanksgiving filled with family, football, and perhaps a little too much pie. Too much pie isn’t a problem for me; my problem is the mountain of whipped cream I put on the pie. The "would you like some pie with that whipped cream?" joke makes an annual appearance in our house.

I enjoy the teasing, and I’ve always been okay with doing things unconventionally if it makes sense to me. Speaking of unconventional, investing in small-cap stocks is inherently going against the grain. This is especially true in today’s environment, where the narrative is that "mega-caps can do no wrong." However, it is my firm belief that the best opportunities exist where nobody else is looking. To achieve market-beating returns, you must be willing to do something different.

While I cannot predict where the broader market is going, I can understand the intrinsic value of an individual company, and I can understand catalysts for growth. So this week, let’s embrace the unconventional. Let's find the small-caps building up pressure and ready to release value—kind of like my beloved whipped cream canister.

The markets don’t stop for food comas. Let’s dig in.

This Week in 60 Seconds

AI Leadership at Innodata (NASDAQ: INOD): This is our Stock of the Week. The Q3 report was great. The company has flipped the script from a low-margin data entry firm to a high-margin AI engineering partner for Big Tech.
Inflation Bites the Dog at Nathan’s Famous (NASDAQ: NATH): A "profit squeeze" is in effect. While revenue is up, a 16% spike in beef costs has compressed gross margins to 29.1%.
A Massive Beat for Aurinia (NASDAQ: AUPH): Net income surged 119% as updated medical guidelines are driving their flagship drug, LUPKYNIS, to become a first-line therapy.
Spin-Off Struggles at Embecta (NASDAQ: EMBC): The diabetes care company is facing headwinds. Despite cost efficiencies, U.S. volumes are down 5%, and the debt load ($1.42B) remains heavy.

Market Snapshot

Note: With the markets closed on Thanksgiving Day and with an early Friday close, liquidity was lower than average. As we enter December, tax-loss harvesting in small caps often creates artificial pressure—and opportunity.

The Headlines

Here at SCN, we frame each filing as a distinct narrative. This is our repeatable process. What that means for you is less time figuring out the “why” behind the headlines and more time with actionable insights.

Aurinia Pharmaceuticals (NASDAQ: AUPH) – The Breakout Star

Aurinia is delivering. Net income surged 119% to $31.6M. This growth is driven by a structural change in how doctors treat lupus nephritis (updated ACR guidelines).

The company is cash-rich ($351.8M) and buying back shares, signaling confidence.
Our Take: Buy/Bullish. The guideline change is a durable catalyst. With $44M in operating cash flow, this is a growth play that is funding itself.

Nathan’s Famous (NASDAQ: NATH) – The Inflation Trap

Revenue is resilient (+11%), but profitability is contracting. Gross margins fell to 29.1% due to a 16% spike in beef costs.

This is a classic "margin squeeze." Until beef prices normalize, earnings growth is capped.
Our Take: Hold. It’s a yield play (2.2% + special dividends), but don't expect capital appreciation until input costs drop.

StealthGas (NASDAQ: GASS) – The "One-Off" Incident

· A vessel accident (the Eco Wizard) hurt the quarter, causing an 18.4% drop in net income. Despite the accident, the balance sheet is pristine. They have $90M in cash and zero debt on their owned fleet.

The market hates uncertainty, but this looks like a temporary operational hiccup rather than a structural failure.
Our Take: Hold/Value. The strong balance sheet makes this a safe harbor, even with the vessel accident.

Embecta (NASDAQ: EMBC) – The Value Trap?

Revenue is down 2.3% YoY due to pricing pressures. While they are paying down debt ($50M YTD), it remains high at $1.42B.

This is a low-growth story (guidance implies flat-to-slight growth) burdening a leveraged balance sheet.
Our Take: Cautious. The 5.9% dividend is tempting, but with U.S. market saturation, the upside is limited.

The Box Score

Our proprietary quantitative scoring method providing you with a comprehensive score of every stock.

Napco Security Technologies (NASDAQ: NSSC)

Napco is a high-quality compounder. Record Q1 Revenue +11.7% and recurring service revenue is now nearly half of the business (48%). The fundamentals look good with $105M in cash and zero debt.

· Why it matters: The shift toward high-margin recurring revenue is transforming the business model, reducing volatility, and justifying a higher multiple than a traditional hardware maker.

· Our take: Bullish. This is a high-quality compounder and valuation is reasonable, resulting in a compelling setup for long-term growth.

Criteo (NASDAQ: CRTO)

Criteo is successfully pivoting to the booming "Retail Media" market, driving an expansion in EBITDA margins and generating robust free cash flow ($67M in Q3). The company is proving it can grow without relying on third-party cookies, validated by partnerships with major players like Google.

· Why it matters: The valuation suggests the market has not yet priced in the success of this turnaround or the durability of its new AI-driven ad tech stack.

· Our take: Bullish. The combination of aggressive share buybacks, zero debt, and surging cash flow makes this a standout value play in the tech sector.

Climb Global Solutions (NASDAQ: CLMB)

· Climb Global Solutions smashed estimates with 35% revenue growth, fueled by its aggressive M&A strategy. However, the costs of integrating these new acquisitions temporarily weighed on net income, which dipped to $4.7M.

· Why it matters: The top-line explosion proves the demand is there, but the "profit squeeze" from deal costs forces investors to trust that margins will recover once the integration is complete.

· Our take: Bullish. Trading at just 19x forward earnings, the stock is cheap relative to its growth rate, assuming management can restore margins in 2026

The Red Flag Radar

We scan the filings for hidden risks: going-concern warnings, material weaknesses, restatements, and sudden auditor changes. These are alerting you to sell signals.

Evolv Technology (NASDAQ: EVLV) – Accounting Scandal + Executive Firings

What the filing says:

An internal investigation by the Board’s ad hoc committee concluded that revenue was “prematurely or incorrectly recognized” between Q2 2022 and Q2 2024, impacting roughly $4–$6 million in sales.
The fallout was immediate: On November 21, the company announced the departures of both the CEO and CFO.
The company warns it expects to report one or more material weaknesses in its internal controls and that previous financial statements “should no longer be relied upon.”
Our take: Sell/Avoid. When the C-Suite is fired for revenue recognition errors, the stock is un-investable.

SunPower Corp. (NASDAQ: SPWR) – The Delisting Countdown

What the filing says:

· The solar installer is on the brink. On November 19, SunPower received a deficiency notice from Nasdaq for failing to file its Q3 10-Q on time.

· This follows a pattern of restatements and delayed filings. The company has 60 days to submit a plan to regain compliance, but with a market cap that has evaporated to ~$140M and liquidity strained, the risk of a move to the OTC markets (pink sheets) is rising.

Our Take: Extreme Caution. Delayed filings during a liquidity crunch are often the final warning before a restructuring or bankruptcy filing.

Form 4 Watch

Insider buying is the only signal that can’t be faked. Here are buy alerts.

NextDecade (NASDAQ: NEXT) – The High-Conviction Cluster Buy:

On November 24, filings revealed a purchase of 767,107 shares. This follows recent buying by the CEO (Matthew Schatzman) and strategic partners earlier this month.

Our Take: Bullish. When insiders and partners load up nearly a million shares in a week, they likely see the current dip as a temporary dislocation, not a fundamental flaw.

Spruce Power (NYSE: SPRU) – The CEO Double Down:

Insiders are stepping in to support the price. Filings show a purchase of 208,451 shares on November 24.

Our Take: Bullish. The stock has struggled, but management is aggressively buying the dip, signaling they believe the market has mispriced their asset value.

In The Spotlight 📽

Innodata (NASDAQ: INOD) – The AI Pivot is Real

Innodata has successfully repositioned itself as a critical partner for Big Tech’s AI initiatives. They are engineering the data needed to train Generative AI models, positioning themselves firmly in the AI trend.