Fortrea Holdings (FTRE): The Best Performing Short Position of Prosper Stars & Stripes

Prosper Stars & Stripes, a long/short equity fund, recently released its first quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund underperformed and generated a net return of -9.7% compared to a total return of -9.5% for the long-only small cap Russell 2000 Index (the “Russell”), and a total return of 0.2% for the long/short equity hedge fund peer group represented by the HFRX Equity Hedge Index (the “HFRX”). A combination of factors led the composite to underperform compared to its net exposure at the start of the year. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its first-quarter 2025 investor letter, Prosper Stars & Stripes Fund highlighted stocks such as Fortrea Holdings Inc. (NASDAQ:FTRE). Fortrea Holdings Inc. (NASDAQ:FTRE) is a contract research organization. The one-month return of Fortrea Holdings Inc. (NASDAQ:FTRE) was 41.22%, and its shares lost 73.84% of their value over the last 52 weeks. On June 12, 2025, Fortrea Holdings Inc. (NASDAQ:FTRE) stock closed at $6.27 per share, with a market capitalization of $567.435 million.

Prosper Stars & Stripes Fund stated the following regarding Fortrea Holdings Inc. (NASDAQ:FTRE) in its Q1 2025 investor letter:

“The best performing short position in the first quarter of 2025 was Fortrea Holdings Inc. (NASDAQ:FTRE). Fortrea is a contract research organization (“CRO”) or a company that helps design and execute clinical trials for pharmaceutical and biotechnology customers. The company was spun-out of LabCorp (LH) in mid-2023 and was not set up for success in our view. We have observed spin outs where the new company is saddled with high debt and a need to increase investment. FTRE trailed its peers in key metrics such as revenue per full-time employee (“FTE”), return on research & development (“R&D”), and operating margins. In fact, the company’s margins were 50% below other leading CROs. In addition, we believed the new management team made overly optimistic assumptions about future projections. When FTRE reported Q4 2024 results in early 2025, the company guided for -7% top-line growth and 7.5% EBITDA margins in FY25, far below the original expectations of positive top-line growth and double-digit EBITDA margins. Further, Fortrea’s net leverage ratio reached 5.1x leaving very little financial or operational flexibility. We closed our short position after the decline in the stock price.”

Fortrea Holdings Inc. (NASDAQ:FTRE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held Fortrea Holdings Inc. (NASDAQ:FTRE) at the end of the first quarter, which was 38 in the previous quarter. Fortrea Holdings Inc.’s (NASDAQ:FTRE) first quarter revenue declined 1.6% year-over-year to $651.3 million. While we acknowledge the potential of Fortrea Holdings Inc. (NASDAQ:FTRE) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of FTRE as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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