Shorting Amplify Brands Can Lead to 50% Gains

Amplify Brands (BETR) 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.
What’s weird is that 100% of the shares offered in the IPO came from insiders selling the stock, meaning none of the money generated from the IPO will go to the company. Following the busted IPO, Amplify Brands has staged an impressive comeback and is now trading over 30% its all-time lows.

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, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

Posted in ...