Whitney Tilson Names Spirit Airlines Favorite Long Idea, Wayfair Top Short

• In a report titled "A Stroll Down Memory Lane and My Favorite Long and Short Ideas," Kase Capital Management Whitney Tilson shared his takeaways following the 2015 Robin Hood Investors Conference.
• This article will focus on his favorite long and short ideas, Spirit Airlines Incorporated SAVE and Wayfair Inc W.

Long-Term Winner

Tilson's favorite long idea is Spirit Airlines, which he defined as "A Long-Term Growth Story Priced As If Growth Is Gone Forever." Shares are down roughly 55 percent year-to-date. He pointed out the rapid growth of this ultra-low-cost carrier, which has plans to expand to 20 new markets next year, reaching a total of 310 markets within five years.

"There are very few companies I'm aware of that are growing 20-30%, with 25%+ operating margins and returns on equity, with net cash positions, whose stocks are trading at 8-9x earnings," Tilson wrote.

He went on to look into the steep decline in Spirit's stock price over the year, mostly driven by concerns about the high capacity growth, the increased competition due to lower oil prices and the exile of growth investors. However, he noted that the company has been growing consistently and explained that, in his view, it "Is Only Scratching the Surface of Its Total Potential Market Over Time."

"Ultra-Low-Cost Carriers Are Nearly 20% of the European Market; Spirit, the Largest of the U.S. ULCCs, Is Only 1.8% of the U.S. Market," he added.

Related Link: Whitney Tilson: Wayfair Is By Far My Largest Short Position, Will Be Under $10 Within A Year

Short Play

Tilson’s favorite short idea, on the other hand, is Wayfair: "A Growth Story Run Amok, With a Potentially Serious Formaldehyde Problem."

The expert said Wayfair is a quickly growing company in the e-commerce space that had had a great performance before its most recent pullback.

A few other relevant points Tilson added:

• Since the company was rebranded Wayfair in 2011, sales have surged consistently
• Losses have also been persistent
• Over the past 11 quarters, the company has generated $62.3 million of free cash flow

The short thesis is based on three premises:

1) One of the major drivers behind Wayfairs growth seems to be its willingness to "sell dollar bills for 95 cents, but this isn’t a good business."

2) "In trying the meet the extreme growth expectations built into its high share price, there are signs that the wheels are coming off Wayfair’s bus."

3) Insiders are disposing of their stock quite aggressively. Moreover, Tilson believes "Wayfair is playing games with top management compensation to inflate adjusted earnings and free cash flow."

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.