Famed short-seller Andrew Left’s Citron Capital published its Annual Investor Letter for 2019 on Monday.

“In 2019, our first full year of operation, Citron Capital, LP generated a gross return of 56.4% and net return of 43.3%,” wrote Left. “The Fund’s average exposure during 2019 was 75.8% long and 80.3% short.”

Characteristically, (even though he outperformed it by a wide margin) Left dismissed the S&P500’s 2019 return of 29%: “(It) was largely driven by a few individual stocks (e.g., Microsoft and Apple).”

Left is well-known for Citron Research, a stock commentary website that has been operational for over 17 years. “With over 150 reports, Citron has amassed a track record identifying fraud and terminal business models second to none among any published source,” claims the website.

With that kind of stock-picking and analytical expertise, let’s look at the top long and short positions of Citron Capital.

Top long pick – RH (Price Target $300; Last close $212.77)

RH, previously known as Restoration Hardware, is a curator of design, taste, and style in the luxury lifestyle market, offering furniture, lighting, textiles, rugs, bathware, décor, and outdoor, as well as baby & child and teen products.

The stock (NYSE: RH) closed Monday at $212.77.

Left’s rationale for Citron Capital’s long position on RH:

• “It’s the only luxury platform with no competition, a tremendous moat, a brand that’s loved by millennials, and a business that has yet to go international. Most importantly – the most desirable buildings in almost every major US city.”
• Applying the recent 17X NTM EV/EBITDA multiple in LVMH’s purchase of Tiffany & Co (“current luxury land grab”) the RH price target works out to $348
• The company has matured enough to be an acquisition target in 2020. [Likely suitors could be Berkshire Hathaway, Amazon, LVMH, Private Equity (namely L Catterton – the largest consumer-dedicated PE firm in the world)]

Top Short Pick – Peloton Interactive (Price Target $5; Last close $29.75)

Peloton is the largest interactive fitness platform in the world, with a community of over 1.4 million members. The company pioneered connected, technology-enabled fitness, and the streaming of immersive, instructor-led boutique classes for its members anytime, anywhere.

The stock (NASDAQ: PTON) closed Monday at $29.75.

Left’s rationale for a Citron Capital’s short position on PTON:

• “We know CEO Foley is trying to prop the stock up ahead of its lock-up expiry in March.”
• It competes against itself in pricing. It offers a $12.99 monthly fee for the digital app without equipment vs. $39.00 with Peloton equipment
• Competition is undercutting them on every product
• Music rights make the “spin experience” difficult to scale

Left offers small consolation to Peloton however, saying that at his target price of $5, it would still be a $1.5 billion company.

Related Story:  Activist Investors Stay Busy This Week – Rolls Royce, GAM, Domino’s Pizza