Quicktakes on CPG LN, FIGS, YOU

Publicly traded companies mentioned herein: American Express Co (AXP), Clear Secure Inc (YOU), Compass Group PLC (CPG LN), Figs Inc (FIGS)

Highlights

Investors shared quick thoughts on short and long ideas including CPG LN, FIGS, YOU:

One investor is shorting a lot of direct-to-consumer names on the belief that customer acquisition costs are soaring. One such short he presents is Figs Inc (FIGS), a DTC company that sells high quality medical scrubs with fashion appeal which has won significant market share in the last 2 years during the pandemic. The business has high gross margins, but growth is slowing down dramatically coming out of COVID. He is also looking at several health plan capitation businesses designed for Medicare Advantage. He didn’t pinpoint the names but said, in general, none of these businesses have any real margin of safety in their actuarial analysis. They’ve benefitted from massive utilization upside due to COVID. As the pandemic winds down, this investor expects those businesses to slow down dramatically.

Another investor is short Clear Secure Inc (YOU), which operates biometric travel document verification systems at major US airports and stadiums. The company penetrated the frequent flyer market by picking up large numbers of business travel customers from several airlines, American Express, and other businesses. It’s not a service that makes a lot of sense for infrequent travelers. Airports are the landlord charging Clear for space. The TSA is also modernizing its technology and plans to introduce technology very similar to Clear. His bearish outlook is also based on witnessing non-existent use of Clear check-ins at major airports and stadiums very recently.

Another investor is also short Clear, characterizing it as nothing more than outsourced free labor for the airports and stadiums. He points out the stock still trades at close to ~9x revenue, so there’s plenty of downside from here. He feels that the company is grossly misrepresenting their business. For example, most new customers think it’s a faster way through security, but travelers still must use the same TSA security screening as everyone else. Clear is nothing more than the ID and boarding card check. He has looked closely at their presence in several major airports and estimates those operations are still unprofitable after several years in operation.

One investor is long Compass Group PLC (CPG LN), the largest contract catering business. The business provides catering for stadiums, schools, hospitals, and the like. While the company is based in London, 70% of their revenue is in the US. The long call is based on massive reopening tailwinds to almost every aspect of their business. They just reported a fiscal Q1 sales update with sales up 100%+ compared to the same period in FY 2019 in 4 out of their 5 business segments. About 60% of their core markets insourced labor going into COVID. While outsourcing might offer businesses 10% - 15% savings in a normal market, the current situation is far from normal with massive food and labor inflation. On top of that, there’s a huge new demand for catering that can deliver qualitative COVID hygiene protocols, an offering that Compass has spent the last 2 years developing. The company at this point has declared that they’ve never seen a pipeline so strong. This investor pencils out 20% annual revenue growth for the business for the next 3 - 4 fiscal years. When the stock traded at 14.5x forward EBITDA in 2019, it was growing organically at 7% - 8% topline. It is now growing revenues ~20% and may rerate as a result. 

Lastly, On the management side, investors are fond of the new chairman of the company, Ian Meakins, as well as a new CFO.