Steven Cohen (Trades, Portfolio)'s Point72 Asset Management recently disclosed that it has increased its investment in Children's Place Inc. (PLCE, Financial) by 53.29%.
Point72 is a hedge fund that was formed in 2014 when SAC Capital Advisors converted its investment operations into a family office. In 2018, the firm reopened to external investors. Point72 invests via a wide range of asset classes and strategies worldwide. Its long-short investing strategy is based on bottom-up research with a focus on fundamentals and macroeconomic conditions. Cohen serves as the president, CEO and chairman of the firm.
According to GuruFocus Real-Time Picks, a Premium feature, Cohen added 262,588 shares to the firm's investment in the company for a total holding of 755,379 shares. The trade had a 0.04% impact on the equity portfolio. The firm now holds 5.18% of the company's total shares outstanding.
Children's Place
Based in Secaucus, New Jersey, Children's Place is a retailer of children's apparel and accessories. It operates under the brand names The Children's Place and Gymboree and has approximately 1,085 stores in the U.S., Canada and Puerto Rico, with 90 locations in other countries. It is the largest pure-play children's apparel company in North America.
On Sept. 10, the stock traded around $24.70 for a market cap of $362.79 million. According to the Peter Lynch chart, the stock is undervalued based on its 2019 earnings, though it has so far brought in net losses for 2020.
GuruFocus gives the company a financial strength rating of 3 out of 10. The cash-debt ratio of 0.05 is lower than 93.31% of competitors, while the Altman Z-Score of 0.76 indicates potential danger of bankruptcy within the next two years. As we can see in the chart below, the company's cash has been decreasing since the beginning of 2019, while its debt has been increasing.
In terms of profitability, the company gets a rating of 7 out of 10. The operating margin of -6.43% indicates that operations currently are not profitable, but the three-year revenue growth rate of 8.3% is higher than 69.99% of industry peers.
Like most primarily brick-and-mortar retailers, Children's Place has seen decreased sales overall in 2020 due to the pandemic, with digital sales soaring and foot traffic beginning to pick back up in the second quarter. For the second quarter, the company reported 118% in digital sales growth for the quarter, backed by a $50 million omni-channel investment as it rushed to support digital sales capacity.
As of Aug. 1, the company had 771 of its stores open. It plans to permanently close a total of 300 stores by the end of 2021, with 200 of those closures being completed in 2020.
Looking forward, Children's Place expects at least part of the shift to digital to remain on a permanent basis. It also reported lower back-to-school sales due both to unemployment and to more students choosing remote learning options.
Portfolio overview
Point72's equity portfolio consists of 778 stocks valued at a total of $15.33 billion. According to the firm's latest filings with the Securities and Exchange Commission, its top holdings are Amazon.com Inc. (AMZN, Financial) with a 2.38% portfolio weight, Alibaba Group Holding Ltd. (BABA, Financial) with 2.26% and Merck & Co. Inc. (MRK, Financial) with 1.81%.
In terms of sector weighting, the firm is most invested in health care, technology and consumer cyclical.
For the quarter ended June 30, the biggest buys of Cohen's firm were Merck & Co, Fiserv Inc. (FISV, Financial) and Alibaba, while its biggest sells were Micron Technology Inc. (MU, Financial), JD.com Inc. (JD, Financial) and CSX Corp. (CSX, Financial).
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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