Shorting Amplify Brands Can Lead to 50% GainsBETR) is a stock that I recommended shorting a few months ago. Since my short call, Amplify Brands has shot up almost 20%. While my short recommendation has not been profitable as of now, I still think the stock has tremendous downside potential and investors should capitalize on the recent rally, which was driven was the market sentiment, to short the stock.
I believe Amplify Brands is trading about 50% about its fair value, representing a great shorting opportunity for investor.
Amplify Brands IPO’ed at $18, however the IPO was busted and the stock soon lost 33% of its value and fell to $12 in the following days.
The primary reason why I think the stock is grossly overvalued is because it relies on a single product—Skinny Pop—for revenue. Due to the apparent strong growth of Skinny Pop, the stock commands a market cap of over a billion dollars.
However, the Skinny Pop’s growth has been pretty much flat over the last few quarters. The company only rakes in about $170 million in annual revenues, which means that its P/S ratio stands at over 5! In addition, the stock is trading at 202 times trailing earnings, which means it needs to grow its earnings at a terrific pace in order to justify its valuation.
However, due to the fact that Amplify Brands’ revenue growth has been flat over the past few quarters, I don’t think the company’s growth story is real. Hence, I think the stock has at least 50% downside potential. In addition, Amplify Brands’ total debt stands at almost $200 million, whereas it only has about $17 million of cash in hand.
Due to several red flags, I am quite sure that the stock is fair value is under $7, which is why I think investors should short it. The short interest in Amplify Brands in currently on the down, however, I think investors should capitalize on the latest rally to short the stock.
Published on Mar 28, 2016By Ayush Singh