I enjoy short selling struggling retailers. There’s just something about them that excites me. Maybe it’s because so many investors buy stock in brands they know and they form emotional attachments with these investments. Disgusting. No matter how poorly their stock performs, these investors hold onto a dream. This kind of thinking epitomizes the stupidity of investors and represents everything I hope to change.
Ashworth (Nasdaq:
ASHW ), a $57 million sports (mostly golf) apparel maker, is one such struggling retailer. Year-over-year, during their latest quarter, revenues decreased 6%, a $700k profit became a $5.7 million loss and margins decreased from 41% to 38%. And to top it all off, this company has $40 million in debt—requiring them to make some hefty interest payments.
All in all, not a very good position to be in when the economy might roll over—somehow I don’t think buying golf apparel will be very high up on people’s to do list (think of the struggling golf course during the depression in The Legend of Bagger Vance). The stock has dropped from the $8 range a few months ago to $2.50 just a few days ago before bouncing to the $4 range (I think the decline simply got too steep). Tax loss selling should pressure the stock until the end of the year.
Sure, it might’ve bottomed, but I’m counting on at least one retest of the lows, especially if they follow the trend of other apparel retailers (a few warned and got crushed today—SMRT -12%, BONT -20%, JAS -19%, MW -16%), and depending on the magnitude of any warning, ASHW could and should make new lows, yielding a hefty profit for short sellers who take this opportunity to short this bounce.
Disclaimer: Short ASHW
