Iconix Brand Group (ICON) has pulled back since a big jump in short interest was reported last week, as traders appear to be pressing their bets on the grounds that the company’s business model of acquiring brands and buying back stock through borrowed money is not sustainable. I don’t quite agree with that outlook, but it’s clear that ICON’s cash returns on invested capital has come under pressure and its debt has continued to expand.
Shares are down again today, and more downside looks possible. Even if shares did get a small year-end bounce, this is no longer a company with a clear path ahead of it and its valuation story isn’t as strong. As we continue to position ourselves for 2015, it’s time to cut our losses and move on to better opportunities. Sell ICON. For those of you investing with a taxable account, the losses may be used to offset gains in other positions, so I recommend consulting with your tax advisor for your individual portfolio.