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Position Close Update: Regis Corporation (RGS)

During the 202-day holding period, RGS underperformed as a short position, rising 31% compared to a 6% gain for the S&P 500.
  • 2 min Read

By David Trainer

New Constructs leverages reliable fundamental data (https://bit.ly/381hKF1) to provide unconflicted insights into the fundamentals and valuation of private and public businesses. Combining human expertise with cutting-edge machine learning (ML) technologies (featured by Harvard Business School: https://hbs.me/308BaTX), the firm shines a light in the dark corners (e.g. footnotes) of hundreds of thousands of corporate financial filings to reveal critical details that drive uniquely comprehensive and independent credit and equity investment ratings, valuation models and research tools. The Journal of Financial Economics (https://bit.ly/3q6G8LI) reveals: 1. Legacy fundamental datasets suffer from significant inaccuracies, omissions and biases. 2. Only our “novel database” enables investors to overcome those flaws and apply reliable (https://bit.ly/303iuoQ) fundamental data in their research. 3. Our proprietary measures of Core Earnings (https://bit.ly/3bQVrD9) and Earnings Distortion (https://bit.ly/3uJkrF3) materially improve stock picking and forecasting of profits. Harvard Business School and MIT Sloan are not the only institutions to write papers on the superiority of our data and research. Find more papers here (https://bit.ly/3uGW0Ih). Now, all investors, not just Wall Street insiders, can access trustworthy research on the earnings and valuation of stocks, bonds, ETFs, and mutual funds. Elite money managers, advisors and institutions have relied (https://bit.ly/3sCT2mj) on us to lower risk and improve performance since 2004. See our client testimonials (https://bit.ly/3dZaa1G) and media coverage (https://bit.ly/3sxYDu2).
New Constructs leverages reliable fundamental data (https://bit.ly/381hKF1) to provide unconflicted insights into the fundamentals and valuation of private and public businesses. Combining human expertise with cutting-edge machine learning (ML) technologies (featured by Harvard Business School: https://hbs.me/308BaTX), the firm shines a light in the dark corners (e.g. footnotes) of hundreds of thousands of corporate financial filings to reveal critical details that drive uniquely comprehensive and independent credit and equity investment ratings, valuation models and research tools. The Journal of Financial Economics (https://bit.ly/3q6G8LI) reveals: 1. Legacy fundamental datasets suffer from significant inaccuracies, omissions and biases. 2. Only our “novel database” enables investors to overcome those flaws and apply reliable (https://bit.ly/303iuoQ) fundamental data in their research. 3. Our proprietary measures of Core Earnings (https://bit.ly/3bQVrD9) and Earnings Distortion (https://bit.ly/3uJkrF3) materially improve stock picking and forecasting of profits. Harvard Business School and MIT Sloan are not the only institutions to write papers on the superiority of our data and research. Find more papers here (https://bit.ly/3uGW0Ih). Now, all investors, not just Wall Street insiders, can access trustworthy research on the earnings and valuation of stocks, bonds, ETFs, and mutual funds. Elite money managers, advisors and institutions have relied (https://bit.ly/3sCT2mj) on us to lower risk and improve performance since 2004. See our client testimonials (https://bit.ly/3dZaa1G) and media coverage (https://bit.ly/3sxYDu2).


Regis Corporation (RGS: $22/share) – Closing Short Position – up 31% vs. S&P up 6%

Regis Corporation RGS was originally selected as a Danger Zone pick on 2/20/18. At the time of the report, the stock received an Unattractive rating. Our short thesis highlighted falling after-tax profit (NOPAT), falling same-store sales, poor corporate governance, and an overvalued stock price.

During the 202-day holding period, RGS underperformed as a short position, rising 31% compared to a 6% gain for the S&P 500.

RGS was upgraded to Neutral on 8/24/18 after we parsed its latest 10-K filing. Since putting new management in place, RGS appears to be reaping the benefits (compared to the prior three years) of converting company owned stores to franchised stores. Franchised stores now represent 51% of total stores (up from 29% the prior year) and NOPAT margins improved from 3% in fiscal 2017 to 6% in fiscal 2018. Additionally, same store sales increased in fiscal 2018 for just the second time in the past eight years.Get the best fundamental research.

While RGS still earns a bottom-quintile 3% return on invested capital (ROIC), its valuation no longer presents attractive risk/reward given the improving fundamentals. The stock now has a price-to-economic book value (PEBV) ratio of 1.5, compared to 4.9 in fiscal 2017. As a result, we are closing this position.

Figure 1: RGS vs. S&P 500 – Price Return

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on September 10, 2018.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

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