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News and Views

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Gentherm Inc.’s (THRM) stock has surged by more than 43 percent in 2018, and nearly 28 percent since being added to the WhaleWisdom 100 Index on May 16. Hedge Funds were adding shares of the stock to their portfolio’s throughout the first quarter.

The maker of climate control seats for cars and trucks is in the middle of a huge stock repurchase program, buying back $300 million worth of stock, nearly 20 percent of the stock’s market capitalization of $1.6 billion. However, when diving deeper into the fundamentals of the company, we find a surging number of short-sellers betting the company’s lackluster earnings and revenue growth overpower their big buyback, sending shares sharply lower.

Hedge Funds Load Up

Hedge Funds were actively adding to their positions in the stock during the first quarter, with the number of aggregate 13F shares held climbing by nearly 7 percent to roughly 5 million shares. Five funds created new positions in the stock, while four added to existing ones. Interestingly, two funds exited, while 9 reduced their stakes.

Growth?

The big run-up in the stock appears to be the function of the company buying back a massive amount of its stock. The outlook for the actual business is not all that impressive. Earnings are expected to be flat in 2018. Even worse, the company recently lowered its outlook for gross margins at a investor strategy day update at the end of June. Earnings growth is expected to accelerate in 2019 and 2020, to 14 percent and then a whopping 34 percent, respectively.

The outlook for revenue is less than stellar, seen growing by 8.3 percent in 2018 and 6 percent in 2019, then surging by 10 percent in 2020.

Short-sellers Loading Up

Most of the big earnings gains are likely to come from the stock buyback, as the number of shares outstanding fall. The company projects gross margins of 30-32 percent through the year 2021 and revenue growth in the high single digits. It suggests revenue growth and cost savings alone will not fuel the big earnings growth analysts are forecasting for 2020.  Short-sellers appear to be betting the high-flying stock crashes back to earth, with the number of shares short surging to its highest levels in 10 years, to 2.7 million shares as of July 13, about 10 percent of the total float.

With the release of the newly updated 13F’s due by August 15, it will be interesting to see if hedge funds were continuing to buy up shares of the climate control company, or if they were using the stock’s price rise as an exit strategy.

This entry was posted on Monday, August 6th, 2018 at 8:40 am and is filed under HeatMap, WhaleIndex. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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