Lakewood Capital Won Big On GT Advanced Technologies Short

In his most recent investor letter, Lakewood Capital founder Anthony Bozza said they saw a return of 87 basis points on their GTAT short

Lakewood Capital took a gamble that shares of GT Advanced Technologies would plummet, and the bet paid off in a remarkably short amount of time. So why did the firm bet against most of the rest of Wall Street on GTAT?

Founder Anthony Bozza explained in his latest investor letter dated Jan. 23, which was reviewed by ValueWalk.

GTAT failed to live up to the hype

GTAT announced in late 2013 that it had struck a deal with Apple to supply sapphire glass for its devices. As a result, the company’s share price skyrocketed as investors speculated about the potential the supplier agreement brought.

It was believed at that time that the iPhone 6 would feature a sapphire glass display, which would have meant big bucks for GT Advanced. Management for the sapphire glass maker immediately issued “ambitious” guidance for revenues and earnings, which spurred Wall Street on and pushed its market capitalization up to a peak of $3 billion.

Lakewood skeptical on GTAT

However, Bozza didn’t buy it, and his firm researched the plausibility of this bull thesis for GTAT. Lakewood Capital initiated its short position in GTAT in spring 2014 and then added to that position during that quarter.

The Lakewood founder said he doubted GTAT’s credibility in terms of its guidance because he didn’t think sapphire “could be economically produced on such a large scale.” He also said they didn’t think it made sense to use sapphire glass as a cover for Apple’s products.

Lakewood finds sapphire glass lacking

Of course sapphire glass is known for being extremely hard and very scratch resistant, but Bozza said they ran their own experiment and found that it tends to shatter pretty easily. To run the test, Lakewood’s experimenters purchased a Kyocera phone that used sapphire glass with the Gorilla Glass cover that was used on the iPhone at that time.