Destination Maternity (DEST) Has Fallen 96% in Last One Year, Underperforms Market

Noble Horvath

If you are looking for the best ideas for your portfolio you may want to consider some of Choice Equities Capital Management’s top stock picks. Choice Equities Capital Management, an investment management firm, is bearish on Destination Maternity Corp (NYSE:DEST) stock. In its Q2 2019 investor letter – you can […]

If you are looking for the best ideas for your portfolio you may want to consider some of Choice Equities Capital Management’s top stock picks. Choice Equities Capital Management, an investment management firm, is bearish on Destination Maternity Corp (NYSE:DEST) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Destination Maternity Corp (NYSE:DEST) stock. Destination Maternity Corp (NYSE:DEST) is the largest designer and retailer of maternity apparel.

On July 24, 2019, Choice Equities Capital Management had released its Q2 2019 investor letter. Destination Maternity Corp (NYSE:DEST) stock has posted a return of -96.0% in the trailing one year period, underperforming the S&P 500 Index which returned 13.8% in the same period. This suggests that the investment firm was right in its decision to sell the stock in Q2 2019. On a year-to-date basis, Destination Maternity Corp (NYSE:DEST) stock has fallen by 32.7%.

In Q2 2019 investor letter, Choice Equities Capital Management said the fund posted a return of -0.5% in the second quarter of 2019, underperforming fund’s benchmark the S&P 500 Index which returned 4.3% in the same period. Let’s take a look at comments made by Choice Equities Capital Management about Destination Maternity Corp (NYSE:DEST) stock in the Q2 2019 investor letter.

“DEST – Regarding Destination Maternity, after the company’s 4Q 2018 report which I described in our last letter, I determined that I wanted to see at least one more earnings report from the company before I made any further decisions on how to manage our position. Sentiment was rotten after the 1Q report featured mixed results and soft margins, but I reasoned the share price gave little credit to an interesting niche brand pursuing an appropriate strategy to capitalize on its value. After an in-depth review of their earnings results, I thought it’d be reasonably likely we’d see stronger gross margins and improving trends in their eCom business in the upcoming quarter, and that investor perceptions could change in a hurry with only a moderate improvement in performance.

Of course, at the time I made this decision, I did not anticipate the market would go through the worst month of retail share performance in the last ten years. I also did not anticipate further changes at the board level that would undermine my confidence in operations underway in the C suite. Real time reads on mall traffic going meaningfully negative would further weaken my confidence in the situation. With these signposts emerging after making the original decision to hold, I began to trim our position in anticipation of upcoming results and cut exposure in other retail names, limiting other losses there to less than half a percent.

When the company announced quarterly results, gross margin was indeed better. Unfortunately, little else was. With diminished confidence in the outlook, I chose to exit our position. Generally, our investments in the turnaround / temporarily depressed fundamentals category have paid off well for us. A key guiding principal has been to invest only once the business’s fundamentals have stabilized. Importantly this critical turning point frequently marks the low in price, even if it can be hard to judge in real time. As I review our investment here and particularly our entry point last summer, it is clear I misread DEST’s then double digit eCom sales growth as sustainable and indicative of the fact the business had stabilized. Moving on.”

Our calculations showed that Destination Maternity Corp (NYSE:DEST) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.

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