Alphyn Capital Learned a Valuable Lesson in Alliance Data Systems (ADS)

Alphyn Capital Management, an investment management firm, published its fourth-quarter 2020 investor letter – a copy of which can be downloaded here. A net return of 17.2% was recorded by the fund for the Q4 of 2020, below its S&P 500 TR benchmark that delivered an 18.4% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Alphyn Capital Management, in their Q4 2020 investor letter, mentioned Alliance Data Systems Corporation (NYSE: ADS) and shared their insights on the company. Alliance Data Systems Corporation is a Columbus, Ohio-based loyalty and marketing services provider that currently has a $5.7 billion market capitalization. Since the beginning of the year, ADS delivered a 53.71% return, impressively extending its 12-month gains to 329.56%. As of April 01, 2021, the stock closed at $113.35 per share.

Here is what Alphyn Capital Management has to say about Alliance Data Systems Corporation in their Q4 2020 investor letter:

“My investment in Alliance Data Systems was a mistake, as mentioned in my Q1 letter. I allowed myself to be drawn to management’s narrative and was not critical enough of their excuses for poor performance. I was also heavily influenced by the notion that the valuation appeared cheap on a price-to-free cash flow basis. As I should have better remembered from my investment banking days in the early 2000’s when I was involved with IPOs, the stock market seeks growth and does not attribute high terminal value to stagnating companies, especially when management teams have lost the market’s confidence. While this seems obvious in hindsight, the lesson is to act more decisively in cutting a “bad” position in the future.”

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Our calculations show that Alliance Data Systems Corporation (NYSE: ADS) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Alliance Data Systems Corporation was in 32 hedge fund portfolios, compared to 36 funds in the third quarter. ADS delivered a 53.71% return in the past 3 months.