If you are looking for the best ideas for your portfolio you may want to consider some of Hayden Capital’s top stock picks. Hayden Capital, an investment management firm, is bearish on Cimpress PLC (NASDAQ:CMPR) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Cimpress PLC (NASDAQ:CMPR) stock. Cimpress PLC (NASDAQ:CMPR) provides various mass customization services.
On August 11, 2019, Hayden Capital had released its Q2 2019 investor letter. The investment first said that it sold its position held in Cimpress PLC (NASDAQ:CMPR) stock in Q2 2019. Cimpress PLC (NASDAQ:CMPR) stock has posted a return of -29.7% in the trailing one year period, underperforming fund’s benchmark the S&P 500 Index which returned 11.9% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Cimpress PLC (NASDAQ:CMPR) stock has fallen by 33.3%.
Hayden Capital fund posted a return of 11.98% in the second quarter of 2019, outperforming fund’s benchmark the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Hayden Capital about Cimpress PLC (NASDAQ:CMPR) stock in the Q2 2019 investor letter.
“Cimpress (CMPR): This quarter, I sold our position in Cimpress after almost 4 years of ownership (initially purchased August 2015). During this period, our returns on the investment have been disappointing, to say the least.
If partners remember back to our initial thesis, it was originally distilled down to a bet on the shift to the “higher-expectation” customers, which was complemented by the acquisition of Upload and Print businesses in Europe to serve this new customer-set. These customers spent 5x more on printed materials compared to Cimpress’ historical customer base. The result was better incremental customer economics, once they were onboarded as customers.
At the time, Cimpress was spending ~50% of its gross profit on marketing expenses (both retaining and acquiring new customers), and ~50% of remaining discretionary capital allocation (excluding share repurchases) towards acquiring these Upload & Print businesses. I estimated the return on marketing spend was north of 30% IRR, and the Upload and Print acquisitions were yielding +16% after-synergies.
Issues cropped up the last few years though, as Cimpress faced heavier competition, which drove up the cost of acquiring customers (particularly on Google), which eroded those marketing returns. Although no single competitor came close to Cimpress’ scale, a collection of smaller competitors that provided a better customer / website experience put pressure on them. Executional mistakes also exacerbated the issue. This result was Vistaprint revenues (54% – 68% of total revenues) growing only ~6% y/y and profits ~8% y/y.
At the same time, Cimpress tried to fix these and other issues by making several strategic changes – most notably pivoting from trying to centralize corporate functions, to trying to decentralize the business units. This shifting back and forth resulted in some wasted investments, which are evident in the relatively flat steady-state cash flow generation capabilities. But more importantly, it was a distraction for the organization.
We initially purchased the position at ~$67, and ultimately sold out of it at ~$89 this spring11. While our return on investment has been positive, it underperformed both the rest of Hayden’s portfolio as well as comparable benchmarks.
While I think Cimpress will continue to rise in value and maintain its competitive position in the industry, I question whether it has ability to outperform our other investment opportunities going forward. In short, I have lost confidence in management’s judgement and ability to execute. We have since redeployed the proceeds into our other portfolio holdings.”
In Q1 2020, the number of bullish hedge fund positions on Cimpress PLC (NASDAQ:CMPR) stock increased by about 6% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Cimpress’s growth potential. Our calculations showed that Cimpress PLC (NASDAQ:CMPR) isn’t ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.