From its intraday low on March 16th (DKK 182), Pandora rallied strongly with a performance until today (June 4, DKK 362) of +85%, more than +50% within the last month. Since Pandora represents a considerable position of my equity portfolio, I want to do a quick recap of my investment thesis and answer the question if a position resizing might be warranted.
Physical Store Network
When Pandora reported its Q1 results on May 5, I asked How did Pandora fare in Q1 with Corona hitting Physical Stores Hardest? They got hit pretty hard in Q1 (and Q2 could even be harder) since most sales are generated from its vast physical stores network. Luckily online stores were improved considerably before covid-19 hit the world and Pandoras sales.
Pandora strengthend its financial position ensuring liquidity and survival even under stressed assumptions. I liked that Pandora took action, since you have to survive in the short term to capther long term earnings (and the market seemed to agree), despite the dilutive effect of sold treasury shares. In effect, I calculated an updated fair value estimate of DKK 664, down from 702.
My investment thesis of a positive turnaround is still valid. With regard to Pandoras turnaround I wrote the following:
Organic sales growth for the first two months (+1%) is encouraging and is supporting my notion that Pandoras turnaround will be successful in the long run.
Trimming my Position?
On March 18, I bought my last and fifth tranch of Pandora and it represented a full position for me. This trade turned out to be a nice timing, but that is not always the case (see my SES investment), to be honest its rather rare.
Currently, my Pandora stake represents my single biggest position after the strong performance mentioned above. It is even bigger than my position in Check Point, which I perceive as a business with much higher overall quality, and much less exposure to pandemic related risk factors. Additionally, the discount to my most recent fair value estimate for Pandora is smaller vs Check Points discount.
The price is already above my buy price of DKK 322 for Pandora, but it is not a sell for me yet (based on a 45% discount). Based on this, I conclude for myself:
Pandora is currently a Hold for me.
It will be interesting to watch and monitor Pandoras performance going forward. Since I have a full position, I strongly hope for further price appreciation. In the meantime I am watching for signs that the turnaround is indeed well underway. As soon as consumers are returning to normal shopping behavior in brick and mortar shops, I want to see positive sales trends. Additionally, I want to see continued positive performacne in online stores. Economic uncertainty could weigh on underlying sales trends, though.
I hope you enjoyed the post. Do you (dis)agree with my thinking? PLs let me know…
(happy investing, stay safe and keep healthy!)