RiverPark Large Growth Fund recently published its Q1 Investor Letter in which the fund discussed its quarterly performance and investment thesis on Alliance Data Systems Corporation (NYSE: ADS) and other companies. We’ve already discussed Amazon.com, Adobe Systems, Booking Holdings, MasterCard, Adidas AG, and Dollar Tree. In this article, we’ll focus on the fund’s thesis on Alliance Data Systems, which provides data-driven marketing and loyalty solutions.
So, here is what RiverPark thinks about ADS which was one of the top detractors for the fund in the first quarter.
ADS was also a top detractor as the company continues to work through several near-term issues in each of its Rewards, Epsilon and Card Services divisions. While we believe that each of the challenges in these divisions will clear in the coming quarters (for example, 2Q18 should be an inflection point in the company’s charge off and delinquency trends in its Card Services division), investor patience has worn thin as management has, on several occasions, pushed out its expectations for a re-acceleration in its business. We have trimmed our ADS position on several occasions over the past several quarters for this same reason and did again this quarter.
ADS has a terrific long-term record of increasing revenue, EBITDA, and earnings at solid double-digit rates (13%, 12%, and 17% for revenue, EBITDA, and earnings, respectively, over the last 10 years) and we believe that each of its businesses has the potential to continue that trend as credit losses normalize, the company’s core lending business continues to grow and the company’s advertising and rewards divisions rebound (due to the ramp up of new programs, as well as improved execution). In addition, as a result of its recent poor performance ADS shares trade at a well below market multiple of 8x next year’s EPS, a significant discount to the company’s long-term growth rate, the Russell 1000 Growth Index’s forward multiple of 18x and the company’s historical multiple (ADS shares last traded at 8x in 2010). To the extent the business begins to rebound later this year, we would look to add to our position as earnings growth coupled with multiple expansion would be a powerful combination to drive ADS’s shares higher.
Plano, Texas-based Alliance Data Systems Corporation (NYSE: ADS) is a global provider of data-driven marketing and loyalty solutions. The company allows its clients to create and increase customer loyalty through solutions that engage customers across multiple touch points using traditional, digital, mobile and emerging technologies. The company consists of three businesses that together employ approximately 20,000 associates at more than 100 locations worldwide.
On the share market, Alliance Data Systems hasn’t performing well this year. If we look at charts, the company’s stock has been declining consistently since January, falling more than 17% year to date. ADS has declined 9.41% over the past three months and 11.36% over the past 12 months.
Meanwhile, a number of hedge funds covered by Insider Monkey also see a value in Alliance Data Systems. As of the end of 2017, there were 41 funds in our database with positions in the company.