Exiting Position: Kits Eyecare Ltd. (TSX: KITS)
Published on 2026-08-05
This afternoon, prior to market close, we exited our SHORT position in Kits Eyecare at a realized price of $14.05, representing a total gain of 20% or 40% on an annualized basis. Our thesis has essentially played out as expected, and although we believe the equity to still be fundamentally overvalued, the near-term catalysts which drove our previous short thesis have largely dissipated.
We published our original thesis on KITS in late February of this year (link), positing the stock as an attractive short-selling opportunity at its current levels. In our report, we outlined our belief that the company holds a very poor competitive standing, has a shorter than is broadly anticipated runway for growth, and a questionable corporate governance scene, all while reinvesting capital at low rates of return and trading near all time highs on a relative basis. In addition, our bullish comprehensive cash flows model demonstrated that KITS was fundamentally overvalued by a large margin and was poised to return well below the broad market going forward. Although we believe this thesis to have been strong enough to act upon in a long-short or risk neutral strategy setting, for our purposes we did not want to enter a position without the opportunity to realize attractive absolute returns.
As near term catalysts to apply downward pressure on shares, we saw weakening growth in 2026 financials, EBITDA estimates being down year-over-year in Q4/25 and Q1/26, a poor trend in analyst’s forward estimates, and a lack of margin expansion going forward. These catalysts presented an opportunity for near term share price declines which we saw as sufficient to deliver absolute return which is line with our standards.
In general, our thesis played out exactly as predicted. Q4/26, Q1/26, and even Q2/26 all disappointed on the bottom line, with EBITDA growing at lackluster rates and margins falling year-over-year. We believe this is testament to KITS requirement for expenditure to maintain growth (expenditure which occurs at weak return rates) and the lack of competitive advantage held by the business. Although our thesis has not changed in this regard, we believe that shares may not be subject to the same degree of near term negative catalysts going forward, and as is such we have exited our position.
At an exit price of $14.05, our position represented a total gain of 20% or 40% on an annualized basis. During the same period, both the TSX Composite and the S&P 500 performed well, with our short underperforming the benchmarks by 26% and 35% respectively. The figure below compares our short position in KITS to the broad market indices across our position lifetime.
