RiverPark Funds recently published its Long/Short Opportunity Fund Q4 Investor Letter in which the fund discussed Alliance Data Systems Corporation (NYSE:ADS) and other companies. We’ve already covered Dollar Tree, Amazon.com, and Charles Schwab. In this article, we’ll take a look at RiverPark’s thoughts on Alliance Data Systems, which provides data-driven marketing and loyalty services.
Here is what RiverPark said in the letter about the company:
Alliance Data Systems (Long): ADS also had a strong quarter as credit delinquencies, which have improved throughout 2017, came in essentially flat year-over-year for November (a marked improvement from late 2016 and the earlier months of 2017). This continues to suggest that ADS is nearing a positive earnings inflection point in 2018 as three years of rising charge-offs (which have pressured earnings comparisons despite strong client growth) begin to ease.
Management continues to guide towards 19% earnings growth in 2018 (on 12% revenue growth) as credit losses normalize, the company’s core lending business continues to grow and the company’s advertising and rewards divisions rebound (as new programs ramp up). Tax reform will additionally boost the earnings growth rate. Investor caution has resulted in ADS shares trading at 11x next year’s pre-tax reform EPS, a significant discount to both the company’s long-term growth rate (over the past 10 years the company has generated revenue and earnings compounded growth rates of 13% and 17%, respectively) and the Russell 1000 Growth Total Return Index’s forward multiple of 20x. As the company returns to more normalized earnings growth in 2018, we believe that this earnings growth coupled with multiple expansion can be a powerful combination to drive ADS’s shares higher.
Alliance Data Systems Corporation (NYSE:ADS) is a provider of data-driven marketing and loyalty solutions. The company offers customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs.
For the year ended December 31, Alliance Data Systems reported revenues of $7.72 billion, up from $7.14 billion for 2016. It had a profit $789 million, or $14.10 earnings per share, versus $518 million, or $7.34 per share, for the previous year.
Shares of the company have dropped 3.56% since the beginning of the year. Over the last 12 months, the stock has gained 5.64%. ADS has an average rating of ‘OVERWEIGHT’ and an average target price of $286.17 from 29 analysts polled by FactSet. On Friday, the stock was trading at $244.99 in the afternoon trading session.
Meanwhile, in addition to RiverPark, Alliance Data Systems Corporation (NYSE:ADS) is also a favorite stock among other active managers and hedge funds such as Point72 Asset Management which upped its stake in the company by 385% during the fourth quarter. Jeffrey Ubben’s ValueAct Capital reported holdings 5.88 million ADS shares as of the end of the last year. In Insider Monkey’s database, there were 41 hedge funds with positions in the company as of the end of the third quarter of the last year.
Interactive Strength Inc. (NASDAQ:TRNR – d/b/a/”FORME”) operates a digital fitness platform that combines premium connected award-winning fitness hardware products with 1:1 personal training and coaching (from real humans) to deliver an immersive experience and better outcomes for both consumers and trainers. Management believes that TRNR is the pioneer brand in the emerging sector of virtual personal training and health coaching. Moreover, this approach accelerates a powerful shift towards outcome-driven fitness solutions. It is part of a growing group of emerging companies that seek to leverage the Internet to provide users with a gym like experience within the comfort of their homes, however TRNR is differentiated with a virtual personal training offering and business model that capitalizes on time-zone efficiency. The Company recently announced the signing of an LOI to acquire a profitable, growing connected fitness business, which could dramatically changes outlook, revenue, profitability, and valuation for TRNR. The acquisition expected to close by the fourth quarter of 2023.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
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