What happened

Shares of Party City Holdco (NYSE:PRTY) climbed sharply higher Wednesday, jumping as much as 10.2%, before ending the day up 7.4%.

The catalyst that sent the party-goods specialist higher was a significant additional investment by a hedge fund.

So what

A regulatory filing released after the market close on Friday revealed that Clifford Sosin, investment manager at CAS Investment Partners, had increased his stake in the party supplier by a wide margin. Sosin acquired 470,000 shares of Party City stock at about $5.32 per share, increasing his stake by roughly $2.5 million.

Children in Halloween costumes in a backyard as a parent passes out treats.

Image source: Getty Images.

As of Oct. 22, Party City had 112,225,383 shares outstanding. With this week's investment, Sosin increased his total stake to 16,456,623 shares, worth more than $87 million at Friday's closing price. This significantly increases his ownership in the company, as he now controls 14.66% of Party City's outstanding stock. 

Now what

The purchase comes on the heels of Party City's mixed third-quarter financial report in early November. The company reported total net sales of $510 million, down 4.4% year over year, though that included a divestiture of some of its international operations. At the same time, total retail sales jumped 8.9%, driven by strong comparable-store sales, which climbed 7.5%. This resulted in non-GAAP earnings per share (EPS) of $0.02.

To provide some context for the results, analysts' consensus estimates were calling for sales of $514.3 million and EPS of $0.01. 

The purchase also comes in the wake of renewed optimism about the company's prospects, as evidenced by its recent upgrade by Zack's Investment Research. The firm noted "an upward trend in earnings estimates" and that "a changing earnings picture is a powerful factor influencing near-term stock price movements." 

Party City is a company in the midst of a transformation. Customers reined in their celebrations last year in light of the pandemic, sending 2020 revenue plunging 20%. Things have improved this year, with net sales up 22% for the first nine months of 2021.

If Party City can maintain its growth trajectory, investors will have much more to celebrate in the months and years to come.

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