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Outperforming Shorts That Could Fall Further

New Constructs

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New Constructs
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Investment Analyst

Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life.

Last week, we looked at three of our worst Danger Zone picks from 2020. This week, we’re looking at the blowups we successfully anticipated during 2020. Casper Sleep (CSPR: $7/share), Teradata Corporation (TDC: $25/share), and DoorDash (DASH: $207/share) are the Danger Zone highlights from 2020. We remain bearish on two of these stocks and are closing one.

In 2020, our Danger Zone picks overall failed to outperform as shorts, as the market soared to record heights. Only 11 out of our 34 Danger Zone picks outperformed the market (S&P 500) as shorts.

Overall, the Danger Zone stocks, including reiterated and closed ideas, averaged a 57% return in 2020 versus the S&P 500’s average return of 18% from each report’s published date.[1]

Our Danger Zone reports combine our proprietary fundamental data, proven superior in The Journal of Financial Economics[2], with qualitative research to highlight firms whose stocks present among the worst risk/reward. Danger Zone reports show investors how to use our research and the transparency of our analytical process.

Figure 1: Performance From Each Danger Zone Publish Date Through 12/31/2020

Performance From Each Danger Zone Publish Date Through 12/31/2020

Sources: New Constructs, LLC

Highlight 1: Caper Sleep (CSPR) – Performance Since Report Published February 3, 2020 through 12/31/20[3]: Down 58% vs. S&P up 12%: Closing Position as of 1/19/21

We first put Casper Sleep in the Danger Zone in February 2020 prior to its IPO just a few days later. At the time, we noted the firm’s slowing and profitless revenue growth, weak competitive position, exorbitant expenses, and overvalued stock price. Despite outperforming as a short since its IPO, the stock remains overvalued and still holds significant downside risk.

What Went Right (for a Short Position): 

Casper has been unable to drive meaningful improvement in profitability, despite mattress and pillow sales soaring as consumers spend more time at home. The firm was hampered by supply chain issues and retail stores with little to no traffic due to closures. These challenges resulted in the firm missing earnings estimates in two of the past three quarters and revenue estimates in the most recent quarter. 

We expect Casper to continue to struggle to meet revenue and earnings estimates in the face of significant competition from mattress providers such as Sleep Number (SNBR), Tempur Sealy International (TPX, Serta Simmons, Leesa, Tuft & Needle, Purple (PRPL) and home goods providers such as Walmart (WMT), Amazon (AMZN), Bed Bath & Beyond (BBBY), Wayfair (W), Overstock.com (OSTK), and many more.

Click here to read the full article

This article originally published on January 19, 2021.

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[1] The S&P 500 gained 16% in 2020, but since our picks are published over the course of the year, we measure performance of our picks against the S&P 500 at the publication dates, not the beginning of the year.

[2] Our reports utilize our Core Earnings, a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence, a paper by professors at Harvard Business School (HBS) & MIT Sloan. Recently accepted by the Journal of Financial Economics, the paper proves that our data is superior to all the metrics offered elsewhere.

[3] Performance measured from Casper’s opening price of $14.50/share on February 6, 2020.

[4] Teradata provides both traditional data warehousing and business intelligence and analytics services. Prescient & Strategic Intelligence expects the global data warehouse as a service market to reach $10.9 billion by 2027. Coherent Market Insights expects the business intelligence and analytics market to reach $55.2 billion by 2027. We combine these two outlooks to arrive at the 2027 total addressable market (TAM) of $66.1 billion.

[5] Performance measured from DoorDash’s opening price of $182/share on December 9, 2020.

Click here to download a PDF of this report.

Disclosure: New Constructs

Disclosure: David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.

About New Constructs

New Constructs leverages cutting-edge Robo-Analyst technology to provide insights and diligence on stocks, ETFs, mutual funds & debt issuers. Highly-respected public and private institutions believe in our concepts::

– Fundamental data and earnings: Core Earnings: New Data and Evidence

– Models for NOPAT, Invested Capital and Return on Invested Capital (ROIC): Getting ROIC Right

– Stock ratings: Robot Analysts Outwit Humans on Investment Picks

The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services.

Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report.

New Constructs’ reports are intended for distribution to its professional and institutional investor customers. Recipients who are not professionals or institutional investor customers of New Constructs should seek the advice of their independent financial advisor prior to making any investment decision or for any necessary explanation of its contents.

In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a “Buy” rating, Very Unattractive and Unattractive correspond to a “Sell” rating, while Neutral corresponds to a “Hold” rating.

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