MarineMax (HZO: $15/share) – Closing Short Position – down 16% vs. S&P up 49%
MarineMax (HZO) was originally selected as a Danger Zone Idea on 10/27/14. At the time of the initial report, the stock received a Very Unattractive rating. Our short thesis noted the firm’s misleading reported profits, costly inventory management, and a sky-high valuation.
During the nearly 5-year holding period, HZO outperformed as a short position, declining 16% compared to a 49% gain for the S&P 500.
Since our original report, HZO has bounced around, rising as high as $27/share in early 2015 and falling as low as $14/share on multiple occasions. Recently, the company’s fundamentals have shown signs of improvement, and its return on invested capital (ROIC) is up from 3% in 2014 to 6% over the trailing twelve months (TTM) period. HZO’s improved profitability, combined with its cheaper valuation, means the stock no longer presents the same risk/reward. We believe it is time to take the gains and close this short position.
Figure 1: HZO vs. S&P 500 – Price Return – Successful Short Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.