In March, a bullish market pushed the company’s valuation to almost $2 billion, up 60 per cent in two months. Since then, shares have slid 33 per cent to last trade at $3.09.
LHC, in its note, said it had offloaded about half its stake in Cettire following a surge in the retailer’s share price early in the year and exited the remaining stake after its chief executive, Dean Mintz, sold $127 million in shares last month.
It noted that the CEO’s share sale last month meant he had sold shares totalling $362 million “in quick time”. Mr Hughes and Mr Aboud told clients it was “difficult to view this as anything other than a red flag”.
At the time, Mr Mintz said the sale was in response to investor demand and would improve the chances of the stock being included in major sharemarket indices, which would force major investors, which track these indices, to invest in the company.
As recently as January, Mr Hughes and Mr Aboud had talked up Cettire’s prospects in letters to clients. “We expect 2024 to be another year of profitable and explosive growth for Cettire,” they wrote in one letter.
“We note that there have been insider sales in the equity and have accordingly taken a more active approach to risk management with this position notwithstanding our positive view on the longer-term outlook for the company.”
Earlier this month, Cettire disclosed an 88 per cent rise in sales for the three months to March 31 compared to the same period last year, while the number of active customers had increased 84 per cent, with earnings also rising. Despite this, two of the four brokers covering the company lowered their share price forecasts.
Cettire facing ‘tail risk’
In their note to investors, LHC cited Cettire’s model of undercutting the pricing of its own suppliers’ products as another “tail risk” to the business. Products from many luxury brands are available more cheaply on Cettire’s platform than in stores.
“In essence, Cettire is arbitraging the global geo-pricing strategy of the brands whose products Cettire sells, making them somewhat of a ‘frenemy’,” they wrote, adding an oversupply in the luxury goods market and other factors had added “more complexity” to the company’s outlook
But the growing concern surrounding the stock’s blockbuster returns haven’t shaken many of Cettire’s backers.
Regal Partners’ chief investment officer, Phil King, said last month he remained a believer in the stock.
He said the fund – which has held a major stake in Cettire since first listing at 50¢ – had used the recent share price drop to add to its position.
In March, Regal increased its stake to 14.1 per cent, from about 11 per cent.
“It’s been a huge winner for us … despite all the noise,” Mr King said. “People have been throwing mud at Cettire since it listed … but not much of it has stuck.”
LHC told its investors that it may take a position in Cettire in the future, adding that it sold out twice before with “considerable success”.
“The Cettire share price has a tendency to overshoot on both sides, perhaps an outcome of the emotion attached to both the bulls and the bears on this stock,” the note said.
“It is our view the stock will likely continue to exhibit volatility, presenting attractive potential trading opportunities.”
