Cettire share price plunges 6% after major investor pulls the plug

A 'red flag' triggered this investment company to sell out completely.

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The Cettire Ltd (ASX: CTT) share price is out of fashion today as a sudden investor exit comes to light.

Shares in the luxury fashion retailer are down 5.5% to $2.92 apiece around midday. The deepened retreat means Cettire shares are now 40% below their 52-week high of $4.90, taking the year-to-date performance into the red, as shown below.

Cettire posted rapid revenue growth in the third quarter only 10 days ago. Yet, 'explosive growth' has proven insufficient for one notable Cettire investor, deciding to sell out entirely.

'Red flag' prompts exit

Sydney-based investment company LHC Capital is no longer a Cettire shareholder.

Clients of LHC Capital were informed of the exit in a note penned by chief investment officers Stephen Aboud and Marcus Hughes.

As stated in the note, half of the investment company's holding in Cettire was ditched earlier in the year. The remainder was sold following a $127 million share sale (at a price of $4.63) by Cettire's CEO, Dean Mintz, in March.

In conjunction with other recent sales, amounting to a combined $362 million worth, Aboud and Hughes wrote that it's "difficult to view as anything other than a red flag". However, Mintz's sizeable sales are not the only basis for putting a bow on this investment.

Doubts about the company's business model were tagged as justification for LHC Capital's move to sell.

Cettire sells products from high-end brands such as Balenciaga, Valentino, and Givenchy. However, Cettire usually sells luxury items at a lower price than its supplier.

It's a difficult dynamic when such brands are extremely careful not to erode their opulent perception through discounting. Expanding on this matter, Aboud and Hughes wrote:

In essence, Cettire is arbitraging the global geo-pricing strategy of the brands whose products Cettire sells, making them somewhat of a 'frenemy

Still, the investment officers at LHC Capital noted they'd be open to investing in Cettire shares again.

Mixed views on the Cettire share price

While the team at LHC Capital opted to sell, another firm recently doubled down on Cettire.

As previously reported, Cat Rock Capital scooped up $13.7 million worth of the ASX-listed luxury business amid weakness in the share price.

Similarly, the team at Bell Potter hold a buy rating on Cettire. However, the recent quarter missed the broker's expectations on the company's adjusted EBITDA margin. In turn, the broker lowered its price target on Cettire shares to $4.00 — which is still 37% above the current price.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cettire. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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