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The following segment was excerpted from this fund letter.
Polished.com (POL – Formerly 1847 Goedeker Inc.)
This will be the third straight update I’ve provided on Polished.com, our largest detractor to performance this quarter.
This has been one of the more frustrating investments I’ve ever made, and we continue to hold our shares despite a significant price decline following the company’s announcement that their Q2 financials would not be filed on time. The announcement came in conjunction with the company disclosing that an internal investigation is being conducted to investigate claims regarding the business made by certain former employees.
The most frustrating part of this situation has been the company’s receipt of poor legal advice leading to the issuance of vague press releases surrounding the issue that have unfortunately raised more questions than they’ve answered.
With that said, I continue to believe that a positive outcome is possible. A declining share price does not mean the story has changed or that the investment thesis has been invalidated. I’m aware of the loss we are holding. But the important question to ask in this scenario is not how much does the stock have to go up for us to make money, but rather, what is the business worth? I am confident that less than 0.1x sales and below 1.5x EBITDA is not the right price. We are also in year one of a multi-year investment thesis. There will be setbacks along the way. This is a large one.
The market is clearly pricing in something dire, including accounting issues, potential financial restatements, or fraudulent activity. Based on what I’ve gathered, I believe the company will emerge clean from their internal investigation and reveal that the root cause was not related to their financial statements, accounting practices or any impropriety within the business operations.
There is of course a non-zero chance that I am wrong, and I reserve the right to change my mind with the receipt of new information.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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