Blackbaud (BLKB) – Closing Short Position – down 19% vs. S&P up 30%
We put Blackbaud (BLKB: $50/share) in the Danger Zone on April 11, 2016. At the time, BLKB received an Unattractive rating. Our short thesis noted the firm’s declining economic earnings, low profitability vs. peers, and overvalued stock price.
This Danger Zone report, along with all of our research, utilizes our “novel dataset”[1] of footnotes disclosures to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the nearly four-year holding period, BLKB outperformed as a short position, falling 19% compared to a 30% gain for the S&P 500.
BLKB’s fundamentals have deteriorated further since our original report. Its return on invested capital (ROIC) fell from 7% at the time of our report to 5% in 2019 and economic earnings fell from -$200,000 to -$36 million over the same time. BLKB is down 38% year-to-date and despite still being overvalued, this drop in valuation presents a great time to take the gains and close this short position.
Figure 1: BLKB 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.
This article originally published on April 6, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
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[1] In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).