MPE Capital, an investment management firm, published its second-quarter 2022 investor letter – a copy of which can be downloaded here. The last twelve months have been a period of both tremendous pain and tremendous growth for the fund. For the first half of 2022, MPE Capital declined 33.1% while the S&P 500 TR declined 20.0%. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, MPE Capital mentioned Poshmark, Inc. (NASDAQ:POSH) and explained its insights for the company. Founded in 2011, Poshmark, Inc. (NASDAQ:POSH) is a Redwood City, California-based social commerce marketplace with an $831.1 million market capitalization. Poshmark, Inc. (NASDAQ:POSH) delivered a -37.87% return since the beginning of the year, while its 12-month returns are down by -62.88%. The stock closed at $10.58 per share on August 26, 2022.
Here is what MPE Capital has to say about Poshmark, Inc. (NASDAQ:POSH) in its Q2 2022 investor letter:
“Two (very) costly mistakes I’ve made over the last twelve months have been my investments in Altice USA and Poshmark. Both are down over 50% from my initial purchase price. I not only poorly appraised business quality, I also incorrectly appraised the intrinsic value of both of these companies. It should rarely end up the case that we pay over intrinsic value, at worst case we should never lose money on an investment.
One serious risk is the huge amount of leverage and the possibility of prolonged inflation leading to higher rates. They don’t have any major debt maturities coming due for a few years, but it’s possible that rates are much higher then and they have issues refinancing at favorable terms or at all. I’ve always detested companies with too much leverage not sure why I didn’t consider this enough upon my initial analysis. I guess I figured it’s a stable business that can handle some leverage. However, a business with a lot of leverage will always be at the mercy of capital markets, a fact I can’t ever feel very comfortable with.
In summary, I overstated steady state free cash flows, poorly appraised their value proposition versus peers, didn’t consider new entrants and technologies thoroughly enough, and I didn’t consider the risk of rising inflation and rates. I think once they fiberize their footprint and if they can bring their leverage down, and it’s clear that new entrants aren’t having much effect on their business, Altice might only then be a decent investment candidate.”
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Our calculations show that Poshmark, Inc. (NASDAQ:POSH) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Poshmark, Inc. (NASDAQ:POSH) was in 15 hedge fund portfolios at the end of the second quarter of 2022, compared to 23 funds in the previous quarter. Poshmark, Inc. (NASDAQ:POSH) delivered a -8.40% return in the past 3 months.
In June 2021, we also shared another hedge fund’s views on Poshmark, Inc. (NASDAQ:POSH) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
Disclosure: None. This article is originally published at Insider Monkey.
