Trinseo has played out nicely. For investors who want to continue holding it, I think it will be fine. The company has a great management team and a solid business. With the Bain Capital overhang over, and the liquidity much better, the short ratio is no longer an issue, and the stock has been a monster. It is up three-fold from early last year, and even in 2016, it has ripped from $23 to $42 over the past three months. Is the stock going to $60? It likely will. But in the teens and low $20s, this was such a great example of inefficiencies in our market that it was simply a gift. In the $30s, it was still a compelling buy. At $42, it will likely work, but the easy money has been made.
I will look for a new entry on the stock if we see a big pullback, but for now, it has gone from an enormously oversized position in my portfolio to a tiny position. Again, I believe there is more for this story, but it has been "discovered" and will likely be a little bit better than a market performer. But I will look for the next inefficiently priced company I can find and continue to seek alpha opportunities.
I do not expect any company execution issues, as management has done a solid job of delivering. Other than a market-related pullback, TSE is still relatively inexpensive, and management is conservative in their guidance. Simply, it is my view that it is never a bad idea to take some profits off the table - especially in light of the magnitude - and that this should have brought many investors long-term capital gains and aberrational profits.
To get more aggressive on TSE, I would want to see either an emotional sell-off in the stock or an incorrect assessment by the Street of some company news. As a value buyer, TSE still has upside, but the easy money has been made. It is always possible this could become a momentum stock and continue to surge to new all-time highs. The company also might decide to declare a dividend - which, in light of the enormous cash flow it is generating, is certainly plausible. I believe the declaration of a dividend would make a great deal of sense and would bring an entirely new category of investor to the table for Trinseo.
The enormous short interest position in TSE is no longer an issue, as the incremental float from the recent offering has increased the number of investors and caused short-covering, so that now the trading volume is much more normalized and the stock has become a true institutional-quality name. The bear thesis never played out, and the bulls can declare victory. TSE has had some serious volatility, and investors, if they bought the dips, were able to ride TSE from the teens to the low $30s multiple times - until finally, the stock broke through to new highs and into the $40s this year.
While I certainly would not advocate shorting TSE, I would encourage investors to see if the stock can absorb these recent gains and would look to start buying again in the high $30s - I would be very aggressive in buying in the low $30s. Until we either see a dividend announcement or a new upward revision to numbers, I am inclined to take some profits in the low $40s, and to make this a small position at this point.
I hope this community has made a lot of money on TSE.
My single biggest position here and now? Olin Corporation (NYSE:OLN). More to come.
Disclosure: I am/we are long TSE, OLN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.