Farfetch (FTCH), A Superstar Stock as it Gained +740% in 12 Months

Baron Funds, an investment management firm, published its fourth quarter 2020 “Baron Asset Fund” investor letter – a copy of which can be downloaded here. A return of 15.14% was recorded by its Retail Shares, and 15.21% by its Institutional Shares in the fourth quarter of 2020, both below its Russell Midcap Growth Benchmark that delivered a 19.02% return but above its S&P 500 index that was up by 12.15% in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Baron Funds, in their Q4 2020 investor letter, mentioned Farfetch Limited (NYSE: FTCH) and emphasized their views on the company. Farfetch Limited is a British-Portuguese luxury fashion retail e-commerce company that currently has a $21.99 billion market capitalization. Since the beginning of the year, FTCH delivered a -2.84% return, but its 12-month gains are massively up by 743.54%. As of March 22, 2021, the stock closed at $62 per share.

Here is what Baron Funds has to say about Farfetch Limited in their Q4 2020 investor letter:

“Consumer Discretionary investments and lack of exposure to the underperforming Consumer Staples sector contributed the most to relative results. Strength in Consumer Discretionary was partly due to the outperformance of luxury fashion e-commerce marketplace Farfetch Limited. Farfetch’s shares more than doubled after being added to the Fund early in the quarter. Investors were enthusiastic about the company’s recently announced partnership with Alibaba and Richemont in China, which is expected to expand its reach in one of the most important luxury markets.

Farfetch Limited is a global luxury fashion e-commerce marketplace that connects luxury brands, consumers, and retailers. The platform sells luxury merchandise from upscale boutiques, larger retailers, and the brand manufacturers to more than 2.5 million consumers globally. Led by visionary founder José Neves, the company uses its longstanding relationships with exclusive brands and boutiques to create an unmatched product selection through an attractive “asset-light” marketplace model. Unlike a traditional retailer, Farfetch’s marketplace does not need to hold much of the inventory listed for sale on its site. This allows Farfetch to boast more than seven times the selection of its nearest competitor. Farfetch’s supply is further differentiated by its exclusive content. The company owns New Guards Group (collective of luxury brands like Off-White and Palm Angels), and it can leverage insights from its brand designers and use product launches to attract new consumers. We believe Farfetch will continue to gain market share from other online retailers and traditional luxury retailers that carry their own inventory.

As the only global luxury online marketplace, Farfetch is positioned to benefit from the acceleration of luxury spending online, which according to Bain, is expected to rise from 12% penetration pre-COVID to 30% by 2025. Farfetch recently announced a partnership with Alibaba and Richemont in China, one of the most important and fastest growing luxury markets. Following the deal, we have even more conviction that Farfetch has durable competitive advantages and is well positioned for long-term growth within an expanding addressable market as more luxury spending moves online.”

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Our calculations show that Farfetch Limited (NYSE: FTCH) 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, Farfetch Limited was in 47 hedge fund portfolios, compared to 40 funds in the third quarter. FTCH delivered a -3.73% return in the past 3 months.