RF Capital Management LLC is the investment management company founded by Roger Fan in 2017. Roger Fan is the fund’s Chief Investment Officer. Recently, RF Capital released its Q1 2020 Investor Letter – a copy of which can be downloaded here. In its Q1 2020 Investor Letter, RF Capital reported a 27.13% decline in its quarterly returns. On the other hand, the Russell 2000 and S&P 500 indices were down 30.62% and 20.00%, respectively.
In the said letter, Roger Fan highlighted a few stocks and Stage Stores Inc (NYSE:SSI) is one of them. Stage Stores engages in the management of retail shops and department stores. Year-to-date, SSI stock lost 92.3% and on April 28th it had a closing price of $0.63. Its market cap is of $18.2 million. Here is what Roger Fan said:
"The stock price declined significantly in January due to bankruptcy rumors. Although comparable sales were up 1.4% for the nine weeks ended in January 4, management completely missed their guidance and appeared to have no answers for why that was the case. Furthermore, Debtwire reported that SSI had retained P.J. Solomon and Kirkland & Ellis to explore restructuring options. The article sent the share price crashing. The Wall Street Journal compounded the problem by reporting that SSI was likely to file for bankruptcy. SSI is also currently behind on vendor payments. They now expect to close around 200 stores, reducing their initial planned Gordmans store count from 700 to about 500.
We sold our shares at an average price of $0.72 per share to cut our losses. Although SSI was one of our biggest losers for the quarter, we were able to mitigate our losses by sizing the position at 5% initially. We don’t like to lose money on our investments, but SSI could be a blessing in disguise for investors. Again, SSI changed our views on value trading and portfolio management. Thus, investors are likely to benefit from this mistake for many years to come."
In Q3 2019, the number of bullish hedge fund positions on SSI stock increased by about 20% from the previous quarter (see the chart here).
RF Capital’s comments on Zagg
In the said letter, Roger Fan also highlighted Zagg Inc (NASDAQ: ZAGG) stock. Zagg engages in the design, production, and distribution of mobile phone accessories. Here is what Roger Fan said:
"The share price of ZAGG dropped significantly because the company suspended its strategic review process. Furthermore, Q4 and 2019 full-year earnings were underwhelming. Zagg abandoned the sale process because it wasn’t able to attract a high enough bid. According to management, getting an acceptable sale price was difficult because of soft demand for smartphones, the impact of tariffs, and the difficult holiday season in 2019.
We exited our position at an average price of $2.90 per share. We decided to sell due to the negative momentum. In this case, a cheap stock only got cheaper. However, ZAGG is on our “potential acquisitions” list and we may reinitiate a position in ZAGG at a later date. We still like the business and its earnings power going forward despite the failed strategic review process and weak 2019 numbers."
In Q3 2019, the number of bullish hedge fund positions on ZAGG stock decreased by about 45% from the previous quarter ( see the chart here).
Disclosure: None. This article is originally published at Insider Monkey.