Why We're Excited About These New Situations: LNSR, PRPL, and LE
An update on DKS/FL, LNSR and new ideas for PRPL and LE
Disclaimer: All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital” or “the fund”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason.
Students can get access to our research at a reduced rate by clicking here. If you’re interested in using Koyfin (I highly recommend it), you can get 20% off your plan using my link here.
Interested in becoming an LP? Click here to fill out the contact form. ⬅️
DKS Acquires FL Update
If you happened to read our research on the DKS/FL arb trade from May 19th, you’d see just how much we labeled this deal as asymmetric and how even entering this trade from a neutral position would still yield you favorable returns.
To recap that trade, we’ve reposted the math that we showed below for your quick reference.
As you can see, though we leaned on the FTC at the very least sending for a second request, the “deal goes through” scenario would have yielded a 3.5% return, or ~10.5% annualized (May → September 8).
While we also didn’t think anyone would elect the shares for DKS, which has a conversion of 1 to .1168, Dicks share price rise since the trade announcement even astonished us to say the least.
FL shareholders were designated to make their decision on whether to accept the $24/share in cash or to convert. Our math above didn’t model out a share conversion because at the time, the math just wouldn’t make sense (i.e., share price conversion was lower than the $24/share cash price).
To even get the cash value of the shares in the event of a conversion, you’d at least need DKS’s price to rise to ~$206, which was already a lot to ask in such a short amount of time.
However, the day after DKS announced its Q2’25 earnings on August 28th, FL closed at $24.70 while DKS closed at $212.72, and it seems that, given DKS's commentary, many FL shareholders elected to switch the shares and capture the upside in DKS with the new combined company.
The deal is expected to close today, but as of September 5th, market close, DKS was at $221.24 and FL was at $24.01.
If we held the same neutral position in the company like we outlined in our original report, for visual representation, the return on this arb trade would be 9.2% for holding for 112 days, or 29.9% annualized (math below).
While we’re no longer in this trade, this was quite a win for us. For those who took the long side of the trade (L - DKS), the commentary they provided was also optimistic.
Beat estimates: Sales increased 5% to $3.65B, beating estimates by $40M. Comparable sales of +5% were also better than expectations of a 3.4% increase.
Raised guide: Comping to 2% - 3% from 1% - 3% and slightly raised EPS from $13.80 - $14.40 to now $13.90 - $14.50.
We will note that the new midpoint is under the consensus estimate of $14.37, which is why we believe the stock was partially sold off after earnings.
It doesn’t look like DKS will interfere with the operations of FL (a good thing), private label brands are doing well (which carries a higher margin → 700 - 900bps), and they are still seeing a lot of demand despite some price taking.
Price increases because of tariffs have not been broad-based but rather “surgical,” and they have not seen a consumer slowdown yet.
If we invested in large-cap names on the long side, DKS is one we’d get excited about to hold, but alas, that’s not our mandate.
Congrats to all those who participated.
Now, onto LENSAR.
The Long, Turned Arb, to Now Possibly Long Again? (LNSR)
When we originally pitched LENSAR (LNSR) on February 24th of this year ($9.29), we highlighted the strong momentum the stock was having and that its ALLY machine in the cataracts space was top tier and growing rapidly.
The stock shot up the same week after it reported earnings and topped out at $17.31 (+~81% in a less than a month) before management decided to take a buyout offer from Alcon (ALC) for $14/share with a $2.75 CVR to be paid out if LNSR were to hit 614,000 procedures in the two years ending 2026 and 2027.
We thought this offer was embarrassingly low, which is why we sent out an open letter to vote no (a Hail Mary doomed to fail), and two updates since (March 11th and June 5th).
We are revisiting this trade again because, since LNSR received a second request from the FTC on May 21, 2025, the stock has gradually declined, with the spread now at nearly its highest level since the original announcement in March.
We see this opportunity as a win/win, similar to our DKS/FL call, via two scenarios that could play out, which would yield attractive returns for investors playing either one.