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Alliance Data Systems (ADS) Problems Don’t Stop at Coronavirus

Alphyn Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -21.7% for the quarter, underperforming its benchmark, the S&P 500 Index which returned -19.6% in the same quarter. You should check out Alphyn Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Alphyn Capital highlighted a few stocks and Alliance Data Systems Corp (NYSE:ADS) is one of them. Alliance Data Systems provides loyalty and marketing services. Year-to-date, ADS stock lost 64.1% and on May 12th it had a closing price of $40.26. Its market cap is of $1.93 billion. Here is what Alphyn Capital said:

“Alliance Data has been a disappointment. I based my original thesis on a belief that the company’s core operations remained valuable to their customers, while an activist-led strategy to sell underperforming divisions and use proceeds to pay down debt and make accretive share buybacks had the potential for significant value creation. As time passed it became clear that degradation in the business was more severe than management had initially communicated. Moreover, management was in a state of extreme flux with 2 successive CEO changes in a matter of months. With the advent of the Covid-19 and its potential for massive disruption to credit quality and retail, the accumulation of negative developments outweighed the extremely cheap valuation, and I (belatedly) decided to move on to better opportunities.”

In Q4 2019, the number of bullish hedge fund positions on ADS stock increased by about 15% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Alliance Data Systems downside potential.

Disclosure: None. This article is originally published at Insider Monkey.

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