CURV | Shorting Torrid. PE and bankers selling a false bill of goods to the Street in a once-in-generation boom in the apparel space. ~40% downside. Click note link for full report.
RH: We’re taking RH a notch higher on our Best Idea Long list after an absolutely impeccable quarter last week, and taking our TAIL revenue and EPS estimates higher, which we don’t think is represented in the current stock price. As we stated in our note (RH | $2,000 Anyone?)… So we’re looking at TAIL earnings power of $50, 70% return on invested capital, a truly massive global competitive moat, no real peers, and on top of that a bullet proof balance sheet that will have $125 per share in net cash on its balance sheet by year 5 – if our operating model is correct. The question then is what this is worth. We could easily argue that this is worth 40x-50x earnings given the characteristics noted above. That suggests a $2,000-$2,500 stock in five years vs sub-$700 today. Again, you need to really look out past year 1 and 2 and get creative and imaginative as to what this team can execute on a global scale as it builds up an ecosystem around the high-end home and the luxury consumer. You can debate our modeling assumptions – or the speed at which the company can get this global growth plan done. You can also correctly assume that somewhere down the line, there will be a miss, a negative trend, a slowing of the category overall, and some brutal days for the stock. But it’s undeniable to us the trajectory of where this company, this model, and ultimately the stock are all headed.
LOVE: Taking LoveSac higher on our short list after last week’s 24% squeeze on better-than-expected quarter. The reality is that this company is solely benefitting from the strength we’re seeing around the home furnishings space. While we think that the space will experience a ‘soft-landing’ in stark contrast to apparel (which is likely to be down next year) the reality is that this is the inverse of RH. The brand sells commodity product and is overearning today vs what we are likely to see over a TAIL duration. The Street has estimates marching up to $5 per share while we don’t think the company will ever see anything over $2.00. The 50x p/e and 26x EBITDA multiples make no sense to us – there’s no reason this name should trade at an 80% premium to RH. #ShortTheSac
