SunOpta Inc. (STKL) – Closing Short Position – down 76% vs. S&P up 7%

We put SunOpta Inc. (STKL: $2/share) in the Danger Zone on February 22, 2017. At the time, STKL received an Unattractive rating. Our short thesis noted the firm’s deteriorating economic earnings and return on invested capital (ROIC), lagging profitability in a highly competitive market, 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.”

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During the three-year holding period, STKL outperformed as a short position, falling 76% compared to a 7% gain for the S&P 500.

STKL’s fundamentals have deteriorated further since our original report. Its return on invested capital (ROIC) fell from 2% at the time of our report to 0% in 2019 and economic earnings declined from -$35 million to -$53 million over the same time. However, STKL is down 32% year-to-date and this drop in valuation provides a great time to take the gains and close this short position. 

Figure 1: STKL 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 3, 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).

Click here to download a PDF of this report.

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