Case Study: Inogen (INGN)
Initial report date: Jan 23, 2019
Type of short: Breaking Growth
Thesis
- A spike in growth boosted multiples but was not sustainable.
- The company showed slowing organic growth.
- ASPs are declining, taking margins down.
- Undifferentiated technology / no barriers to entry and increasing competition.
- Management was overstating the company’s TAM.
- Inventory turnover was slowing.
- Estimates were being reduced.
- The stock was wildly expensive at 66x FY1 earnings.
Case Study: Kronos Worldwide (KRO)
Initial report date: May 24, 2018
Type of short: Over-earner
Thesis
- Titanium dioxide prices spiked on supply constraints from the Chinese environmental crackdown. But prices were peaking.
- Feedstock stockpiles had kept input prices artificially low, propelling margins and profit per tonne to near record levels.
- Product substitution, new capacity, customer resistance on pricing and rising feedstock prices made margins unsustainable.
Case Study: Iconix Brands (ICON)
Initial report date: Feb 16, 2015
Type of short: Earnings Manipulator
Thesis
- Sales and profits were artificially inflated through JV transactions, sales of minority interest and acquisitions.
- Organic sales growth was negative. Transaction-level detail work was required to expose this.
- Cash flows were declining, but aggressive accounting masked the declines.
- The company was highly levered, but underrepresented its leverage to investors.
- Our report was followed by sudden management departures, an SEC investigation (and an 80% stock price decline).
Case Study: Pitney Bowes (PBI)
Initial report date: Sept 13, 2016
Type of short: Secular Decliner
Thesis
- Sales were in a secular downtrend due to declining mail volumes and new competitive business models.
- Rebranding efforts were weak.
- Margins and cash flows had been declining.
- Leverage was high threatening ongoing stock buybacks.
- The company frequently missed ever-declining estimates.
- Earnings quality was very weak.
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