TriplePoint Venture: Upgrading The 18% Yielder Ahead Of Q3 Results

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TriplePoint Venture Growth had, and perhaps still has, major issues.One new insider stepped up to buy more shares.We assess the ruins and tell you why we are giving this an upgrade.Woman figures out ...

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Seeking Alpha Since the first Sell rating, TPVG has underperformed S&P 500 (SPY) by about 33% or at an 56% annualized rate. Seeking Alpha We will go over some compelling reasons why we got this story right and how you can use this to your advantage. We will also tell you why we are actually upgrading this to a \"hold\" and how you should incorporate this into your thinking. The Ultimate Yield Trap Sprung On Unsuspecting Investors TPVG had 3 major issues. The first was that it had made some seriously bad investments. When we first gave it a sell, 21.6% of its portfolio was marked as \"yellow\" or \"orange\". Q4-2023 results from 10-K If anyone told you that you should focus on the \"yield\" and not the fact that 21.6% of the loans were going bad, you should reconsider who you are listening to. This number was made seriously worse by the fact that it was 46% of total equity. The simple thought exercise should have been, would you invest in a company with 46% of its equity in danger if it had no dividend? If you answered no but still bought TPVG because it had a high yield, you can figure out where you went wrong. The second issue was that TPVG had sold itself as a conservative (as in lower risk-taking, not Republican) BDC. Investors had bought into that and traded it at a premium to NAV multiple times. The simple math is that when you go from a premium to a discount, your losses are larger. The final issue was that TPVG was doing all this in the best of economic times. It is fairly unusual in BDC space to report quarter after quarter of bad results when the economic climate is so good. TPVG has a lot of software, e-commerce and healthcare technology exposure. So this comes off even stranger in light of that. TPVG Website Why We Are Giving This An Upgrade There are limits to oscillation of a stock price within a certain timeframe, unless things really break down. TPVG is likely hitting those limits. We can gauge this by a couple of different ways. The first is the price to tangible book value. As we mentioned earlier, investors who took the biggest and warmest bath on this, were the ones who paid a premium to NAV. This stock routinely carried a 20% NAV premium because everyone thought it was the best thing since sliced bread. But at a 25% discount to NAV, you have to be cautious pushing a bearish call. Data by YCharts As can be seen in the chart above, this general area has held has support several times over the last decade, with the exception of the pandemic. Another way to gauge this is the ratio of the price to the 200-day moving average. When we put out our first sell (or rather short-sell, since we never owned this) alert, the stock was trading 8% lower than its 200-day average. Today it is 26% lower than this. Data by YCharts You can call it what you like (and we empathize with extremely bearish takes), this is not where you push your luck. The final reason here is that insiders have been stepping up, and there was a notable new addition to that after the Q2-2024 results. While 3 directors bought from December 2023 to March 2024, an officer (and a gentleman we might add), added to his large company stake. NASDAQ You might be familiar with the name. TPVG Website Those were fairly large purchases as well. While we don't necessarily share his optimism, it is probable that in some ways it was a kitchen-sink quarter. He might have some visibility as to where things are headed in Q3 and even perhaps Q4. So pushing the red here is a dangerous activity for the bears. Verdict Credit spreads have been in happy land for the past 2 months, and TPVG likely gives its NAV a small boost this quarter. All things considered, we are upgrading this to a \"hold\". A hold rating after a sell would mean, you cover your short position and look for a better opportunity to short this higher up. As we had detailed previously, the distribution looks fairly unsafe. TPVG would still get an \"Extreme\" level of danger (50%-75%) of another distribution cut on our proprietary Kenny Loggins Scale. Author's Scale That said, from a bear perspective, if you get a 5% up move from here over the next 12 months, and you have to pay that 18% (or even 15% if it is cut further) distribution, and you have to pay borrowing costs, you will hurt fairly badly. Just the odds are heavily against you to make a lot. We had shorted this as well and have covered our position. The Q3-2024 results should be interesting and will provide proper information to discern if the insider buys were misguided or not.  Please note that this is not financial advice. It may seem like it, sound like it, but surprisingly, it is not. 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