SRK Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A return of +59.17% was delivered by the fund for the second half of 2021, outperforming the S&P 500 and the Russell 2000 Index that gained +15.25% and 17.53%, respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of SRK Capital, the fund mentioned Tile Shop Holdings, Inc. (NASDAQ: TTSH), and discussed its stance on the firm. Atlassian Corporation Plc is a Plymouth, Minnesota-based retailer of man-made and natural stone tiles, that currently has an $394.4 million market capitalization. TTSH delivered a 76.51% return since the beginning of the year, extending its 12-month returns to 245.00%. The stock closed at $7.60 per share on August 10, 2021.
Here is what SRK Capital has to say about Tile Shop Holdings, Inc. in its Q2 2021 investor letter:
“The Tile Shop has continued to contribute to our performance so far in 2021. The company has been able to execute on the back of strong housing trends. In June the company’s up-listing to the Nasdaq was completed; TTSH will now be eligible to be included in indices during the next rebalance at the end of the year which could prove to be a catalyst for the stock price from index buying demand. More importantly, the business has continued to move in the right direction. The company reported Q2 revenue of $96.2 Million, a quarterly sales record and an 8.2% increase over Q2 2019 revenues, with Pro customers now representing over 60% of revenues vs retail customers. This has translated to increased operating margins and earnings over previous quarters. The company has experienced supply chain issues like so many others, but management commented that these issues seem to be improving. The balance sheet has strengthened even further with cash accumulating to approximately $45 Million, and no debt. This leaves the company with a capital allocation decision. What to do with the cash? If history is any indication of what Peter Kamin controlled companies do, we can speculate that there is potentially a return of capital in shareholders future. With improving fundamentals and a strong runway for renovation and remodeling trends the Tile Shop could be a buyout target with the current valuation that it sports.”
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Based on our calculations, Tile Shop Holdings, Inc. (NASDAQ: TTSH) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Tile Shop Holdings, Inc. (NASDAQ: TTSH) delivered a 10.12% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.