November 16, 2021

Casper hopefully ends its nightmare

Good morning traders,

Welcome back to The Daily Setup. Markets were down yesterday. Here’s what’s on the docket today:

  • Casper Sleep gets acquired
  • An activist reveals a stake in Dollar Tree
  • The Bitcoin network receives an upgrade

So have a cup of joe and we’ll see ya tomorrow.


Casper, Dollar Tree, and Splunk


So No More Nightmares?
-Casper shareholders and Casper the friendly ghost…probably

Shares of Casper Sleep (CSPR) almost doubled in Monday’s trading session following an announcement that private equity firm Durational Capital Management will take it private in a deal that will value the company at around $286M. That is roughly a 94% premium from Friday’s close of $3.55, and less than one third the $1B buyout offer from Target back in 2017. Durational Capital will pay $6.90 per outstanding share and expects the deal to close in Q1 of 2022. The stock closed the day up 88.6%.

  • CEO Phillip Krim said the company had been speaking with “outside advisors” as well as Casper’s board of directors for several months in order to assess various financial options. *read: sell our soul to the highest bidder*
  • In what can only be considered a “no sh*t Sherlock” situation, Casper’s board unanimously supports the deal and recommends *read: begs* shareholders to do the same.
  • Casper, which was founded in 2014 and considered one of the innovators of the direct-to-consumer movement, has been more or less a flop since its February 2020 IPO. Hmm, I feel like something else started around that time.
  • The company has lost a little more than two-thirds of its value in the last 18 months, and what was at one point valued at more than $1B as a private business, now has a market cap of about $147M as of Friday’s close.
  • But wait, there’s more! The company announced that losses in Q3 2021 ballooned to $25.3M ($.61/share) from a loss of $15.9M ($.40/share) in Q3 2020.

Casper IPO’d last year at $12, so in the immortal words of Jon Bon Jovi, “We’re halfway there!” As a 43-year old man, I hate myself for actually writing that. It will take a lot of work to get the stock back to its IPO price, but at least the company is moving in the right direction. Keep an eye out for additional news regarding the deal.


I guess money does grow on trees

Shares of Dollar Tree (DLTR) spiked Monday thanks to Friday evening’s news that activist investor Mantle Ridge had taken a $1.8B stock position in the company. Mantle Ridge is asking (probably not nicely) for Dollar Tree to make changes to its Family Dollar stores in order to improve the overall stock performance of the company. DLTR closed out Monday’s trading session up 14.3%.

  • Mantle Ridge is working with Richard Dreiling, former CEO of rival Dollar General (DG), who many credit for turning around that company.
  • Family Dollar was acquired by Dollar Tree in 2015 for $9B but has been a bigger drag on DLTR’s revenue than your kids have on your hopes and dreams.
  • Dollar Tree has already said that they will charge more than $1 for some products (kind of defeats the whole dollar thing) and may look to hire new directors to the board as another potential change to boost the stock price.

Over the past five years, Dollar General has rallied over 190% while Dollar Tree has gained just over 60% over the same time period. At no other point in history would a 60% gain over a 5-year window be considered a failure, but that’s where we are in this historic bull market. Keep an eye on additional changes being made at DLTR as some investors might look to pairs trade the two companies. In other words, one may look to go long DLTR and short DG as a hedge moving forward.


The Splunk Funk

Data analytics provider Splunk announced on Monday that their CEO and president of six years, Doug Merritt, has stepped down. Replacing him is Graham Smith, chair of SPLK’s board and a former Salesforce CFO. Shares dove more than 18% when the public caught wind of the transition. Graham. Look at me, son. It’s not your fault.

  • The company claims they gave Merritt the boot because he was getting in the way of their growth mindset (how’s that working for you, huh?). Given the rate of executive turnover at this company, though, you gotta start wondering if Splunk’s the a*shole in these relationships…
  • This is the worst day the firm has had since December 2020, when a measly Q3 earnings report shaved 23.3% off their stock. To find out whether Splunk can run it back again this year, check in on December 1st when their earnings report drops.

Splunk’s transition to cloud software has made the past couple years pretty rocky, but it’s also set them up for consistent long-term growth. Silver Lake thinks so, too, according to the billion dollars they gave Splunk back in June for restructuring to this end. If you’re looking for quick returns, SPLK is probably not for you, but given their fundamentals and the board’s focus on profits, the long-term outlook may be rosier for patient investors.

Please Stand By, Upgrade in Progress

Crypto Corner

Sunday was big in the Bitcoin development community as the Taproot upgrade went live. Taproot is essentially a basket of network updates that give developers tools to improve privacy and scalability. The new protocol should enable the use of smart contracts (think of it like a digital contract with self-executing rules) which is the main selling point of the main Bitcoin competitor, Ethereum.

  • Privacy improvements mean that blockchain transactions on the Lightning network will no longer stand out, and look like every other transaction. Also, my brain melted a bit trying to understand what I just wrote.
  • Taproot also allows the digital signatures used to verify transactions to use less data, allowing for more use cases on the blockchain.
  • Full adoption could be slow however, since not all velcro wallets Bitcoin wallets are compatible yet, and development could take time.

A lot has happened in the crypto space in the past couple weeks, from Taproot to ETF application denial to the new infrastructure bill that will increase reporting requirements on cryptocurrency exchanges. It’s a lot to process, especially for mere mortals without advanced degrees in computer science. Perhaps the best thing to do in the short term is to buy one of those “HODL” hats that are advertised on Instagram.

If It Moves, Tax It

Rumor has it

Congress would tax breathing if they could

If there is one thing that the government is actually efficient at, it is creating new taxes. Some Congressional Democrats are proposing a new 2% excise tax on corporations that buy back their own shares. The Senators from Team Donkey theorize that corporations would use funds previously pegged for buybacks to invest in their employees, proving that they have never actually spent any time working in corporate America.

  • In recent years, buybacks have been one of the biggest sources of demand in the stock market, especially by America’s largest companies.
  • Senators Sherrod Brown of Ohio and Ron Wyden of Oregon estimate that their proposal would raise $100M over 10 years. This is obviously true because companies with hordes of accountants and lawyers would absolutely just go along with the new tax and not figure out immediate workarounds.
  • This proposal should be one of the next entrants in the Moderate vs. Progressive Battle Royal debate over the spending bill Democrats are trying to advance.

Figuring out the next moves of the nation’s premier nursery school (Congress) can be a Sisyphean task, so investors’ immediate next step might as well be to go listen to “Taxman” by The Beatles and marvel at their prescience. John and Paul may get most of the songwriter street cred, but George wrote his share of bangers.

Jeff Bishop

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