Was Kerrisdale Capital’s Bet on JGWPT Holdings Inc (JGW) a Mistake?

Sahm Adrangi, the manager of Kerrisdale Capital has been bullish on the purchaser of structured settlements JGWPT Holdings Inc (NYSE:JGW) since February, when the fund disclosed boosting its stake in the company to 6.1%. In this way, Kerrisdale currently owns 682,600 shares of the company, versus 228,300 shares disclosed previously. Later on, the fund issued a report explaining its bullish position on the company.

JGWPT website logo x288

However, since the fund reported an increase of its holding of JGWPT Holdings Inc (NYSE:JGW), its stock price dropped by almost 14%, and since the beginning of April, it slumped by around 19%, mainly on the back of a weak financial performance. At the end of March, the company reported its financial results for the fourth quarter and full 2013. The company reported a 16% drop in revenues for the fourth quarter to $106.6 million, and a net loss of $5.4 million, versus an income of $38.6 million in the same period of 2012. The stock trades at a forward P/E of 6.xx, and the average recommendation for the stock stands at ‘Buy’ with the average target price of around $19.80.

Among the strong points that support its bullish case, Kerrisdale mentioned the strong brand name and customer base. JGWPT Holdings Inc (NYSE:JGW) had a market share of around 60%-70%, which positions it as one of the industry leaders. Moreover, the fund highlighted the great growth prospects, and a conservative DCF valuation, which implied a 75% upside to the market price.

The full report can be accessed below:

Kerrisdale Report on JGWPT Holdings

In addition, a couple of days after the report has been issued, in an interview, Sahm Adrangi stated that he is bullish on JGWPT Holdings Inc (NYSE:JGW) because it “operates a highly profitable and well managed business and trades at a very reasonable valuation.”

“We think investors are waiting for a couple of quarters to see the free cash flow show itself and the company has adjusted numbers and when that does the shares will be bid up,” Mr. Adrangi also said.

Check out the full interview:

Several other hedge funds also seemed to be fond of JGWPT Holdings Inc (NYSE:JGW), initiating positions in the company after its IPO in November 2013. Derek C. Schrier‘s Indaba Capital Management reported, in its latest 13F, ownership of 1.05 million shares of the company, followed by Ken Griffin‘s Citadel Investment Group with around 643,000 shares.

Disclosure: none

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