Argosy Investors, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be seen here. The fund’s 2021 performance was 24.3% in select accounts. The S&P 500 by comparison returned 28.7%. Argosy Investors ended the year with 33% of its portfolio in cash and equivalents and dipped as low as 15% at the end of the 2nd quarter last year. Otherwise, cash hovered between 25-35% of the total account value for the fund. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Argosy Investors, in its Q4 2021 investor letter, mentioned Torrid Holdings Inc. (NYSE: CURV) and discussed its stance on the firm. Founded in 2001, Torrid Holdings Inc. is a City of Industry, California-based women’s clothing stores company with an $857.6 million market capitalization, and is currently spearheaded by its CEO, Elizabeth Muñoz. CURV delivered a -14.96% and it closed at $7.79 per share on March 08, 2022.
Here is what Argosy Investors has to say about Torrid Holdings Inc. in its Q4 2021 investor letter:
“Torrid Holdings (CURV) is a fast-growing plus-sized women’s omnichannel retailer with $1.2 billion in revenue in an $85 billion U.S. plus-sized market. I don’t like to own retailers unless they have a differentiated value proposition because the retail world is intensely competitive. CURV has a distinct mission to make clothing specifically designed to fit larger women well. Many of their corporate employees are plus-sized and a significant majority of their store associates are customers first, then become employees. Making comfortable, good-looking clothing is a passion that runs deep for many at CURV.
The market size for plus-size is large and underserved. 90 of 130 million U.S. women fit the definition of plus-sized, and the plus-sized market is growing twice as fast as U.S. Women’s Apparel overall. Torrid’s business is attractive because it is becoming increasingly future-proof, as 70% of its sales now come from eCommerce. The 40% growth CAGR in Torrid’s eCommerce business shown below demonstrates a strong underlying and durable growth driver for the business, supporting 20% overall revenue growth for CURV dating back to 2015.
Given the increasing impact of eCommerce on the business, CURV has been strategically closing stores in non-core markets while using the remaining stores more like showrooms where customers can buy items in-store, have online orders shipped to the store, or buy items online that they tried on in-store. The ongoing reduction in stores should result in lower capital intensity and higher returns on capital going forward. Returns on capital are approximately 40% and have upside due to the shift to eCommerce. One risk is the increasing competition from other brands. Increasing awareness of body positivity is causing many brands to shift their focus to serving plus size female customers just as well as their straight fit customers. I believe Torrid’s authentic and dedicated approach to this market segment gives them plenty of insulation from the half-hearted attempts to appeal to this long-ignored demographic.
Despite CURV’s strong financial results and differentiated position, we purchased shares around $13, or 11x 2022 cash flows. As it trades today around $9.50, its share price implies an 8x FCF multiple for a strong business, implying essentially no future growth and low returns on capital in the future. It seems plausible to us that with 10% compound growth in profits, CURV can generate 80% of its market cap in cash flow in just five years. Perhaps their best course of action if their share price stays this low is to just buy back lots of stock. Assuming 15% annual growth for 5 years, shareholders could expect 20%+ returns from the current $9.50 share price if the business is valued at just 10x free cash flow. There are a lot of ways to win here, and with any expansion in the valuation of the business returns could be even more attractive.”
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Our calculations show that Torrid Holdings Inc. (NYSE: CURV) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. CURV was in 12 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 11 funds in the previous quarter. Torrid Holdings Inc. (NYSE: CURV) delivered a -50.22% return in the past 3 months.
In November 2021, we published an article that includes CURV in the 5 Reddit YOLO Stocks That Are Losing Ground. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
