Steve Mandel’s Lone Pine Doubles Farfetch Stake

After establishing an 8.06 million-share stake in Farfetch Ltd. (FTCH, Financial) toward the end of 2020, Lone Pine Capital, the hedge fund founded by Steve Mandel (Trades, Portfolio) in 1997, revealed earlier this week it has nearly doubled its investment.

The Greenwich, Connecticut-based firm picks stocks using a long-short strategy that focuses on bottom-up, fundamental analysis. Combining growth and value strategies, the firm, whose founder was a former “tiger cub” of Julian Robertson (Trades, Portfolio), is known to not hold positions for very long.

According to GuruFocus Real-Time Picks, a Premium feature, Mandel’s firm boosted its holding in the London-based online retail company by 99.31% on April 20, buying 8.01 million shares. The transaction had an impact of 1.31% on the equity portfolio. The stock traded for an average price of $45.50 per share on the day of the purchase.

The firm now holds 16.07 million shares total, accounting for 2.62% of the equity portfolio. GuruFocus estimates Lone Pine has gained 0.9% on the investment since establishing it in the fourth quarter of 2020.

Farfetch, which operates an online platform that connects sellers and buyers of personal luxury goods, has a $16.32 billion market cap; its shares were trading around $46.14 on Thursday with a price-sales ratio of 9.68.

While the stock has climbed more than 200% over the past 12 months, it has tumbled nearly 30% year to date.

Farfetch shares are, however, outperforming competitors Qurate Retail Inc. (QRTEA, Financial) and Boazun Inc. (BZUN, Financial) by a wide margin.

On Feb. 25, the company reported its fourth-quarter and fiscal 2020 financial results. For the three months ended Dec. 31, Farfetch posted an earnings loss of $6.53 per share on $540 million in revenue, which grew 41% from the prior-year quarter.

For the full year, the company recorded a 64% increase in revenue from the prior year to $1.7 billion. The earnings loss amounted to $9.75 per share.

In a statement, founder, Chairman and CEO Jose Neves said that while 2020 “put the Farfetch platform to the test,” the company was able to establish a leadership position in the luxury fashion space.

“As we enter 2021, I am more energized than ever by the prospects of leveraging our incredible achievements to date and our unique platform capabilities to go after the significant growth opportunities we see in our vision to be a digital enabler connecting the creators, curators and consumers of the global luxury industry, both online and offline,” he said.

Farfetch is scheduled to report its first-quarter 2021 financial results after the closing bell on May 13.

GuruFocus rated Farfetch’s financial strength 3 out of 10. In addition to the Sloan ratio indicating poor earnings quality, the weak Altman Z-Score of -1.77 warns the company could be in danger of bankruptcy if it does not improve its liquidity.

The company’s profitability fared even worse, scoring a 2 out of 10 rating. Although the operating margin is expanding, it is still negative and, along with the net margin and returns on equity and assets, underperforms a majority of industry peers. Farfetch is also supported by a moderate Piotroski F-Score of 4, suggesting its business conditions are stable.

Mandel’s firm has the largest stake in the company with a 4.53% stake. Other top guru shareholders of Farfetch are Baillie Gifford (Trades, Portfolio) & Co., Spiros Segalas (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ron Baron (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

Additional trades and portfolio composition

Nearly half of Lone Pine’s $27.51 billion equity portfolio, which was composed of 41 stocks as of March 31, is invested in the technology sector, followed by smaller holdings in the communication services, consumer cyclical and health care spaces.

Other cyclical retail stocks the firm held as of the end of the fourth quarter of 2020 were Carvana Co. (CVNA, Financial), MercadoLibre Inc. (MELI, Financial), L Brands Inc. (LB, Financial) and Inc. (AMZN, Financial).

Disclosure: No positions.

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