On December 1st, with a short-sell report I wrote on L Brands (LB) and published by Seeking Alpha that I used to launch the Short Seller’s Journal, I explained why L Brands was a great short idea at $96. Here was my rationale:
L Brands (NYSE:LB) is a specialty retailer that operates the Victoria Secret and Bath & Body Works chains. It also operates La Senza, a Canada-based intimate apparel retail concept, and Henri Bendel, a highend accessory products brand. The stock has run from under $7 in March 2009 to its current (November 27) price of $96.68. In that time period, it has outperformed the S&P 500 by over 350%. But, in the context of rapidly slowing revenue growth, declining operating margins, increasing financial leverage and a likely pullback in consumer spending, LB’s stock is extremely overvalued relative to its underlying fundamentals and relative to its peers. In my view, LB represents a compelling opportunity to short the highly overvalued stock of a company operating in a business sector facing significant economic headwinds.
Here’s how the LB short performed from 12/1/15 to present, after reporting an pre-arranged ‘beat’ of Wall St’s earnings estimates (the big game that has developed over the years is for management to ‘wink wink’ walk Wall Street’s robotic analysts’ quarterly estimates down to a level below the actual numbers the company plans to report) but was forced to warn about the rest of the year:
This post was published at Investment Research Dynamics on August 17, 2017.
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