Activist Short Selling in W22

Activist Short Selling in W22

  • Weekly short selling bits and pieces: which dynamics develop at company's and stakeholders' side after a short report; week full of in-depth Q&As with short sellers.
  • This week, we recorded 3 new campaigns, with the targeted stocks trading 6.8% lower on average.
  • We highlight a new UK campaign by ShadowFall who targeted an online fashion retailer, boohoo. According to ShadowFall, boohoo should be struggling with its accounting, minority shareholder and new competition. The shares are up for now, as the company did not hesitate to act upon seeing the report. 
  • We also scrutinise the latest developments in GSX, the ‘China Hustle 2.0’ online education company. We analyse Muddy Water’s update and comments of other activist short-sellers siding with the four existing activists in the stock. 

Short Selling: Bits and Pieces

Companies and activist shorts: An interesting analysis of dynamics that might develop at company and its stakeholders, after a short report, was provided in an article titled  "Anatomy of a Short Attack". Especially intriguing is that this artice, written by a managing partner at Marcum Bernstein & Pinchuk LLP, mainly depicts publicly less visible aspects of company's activities in such 'short attack' cases. Perhaps, to avoid being targeted in the first place, certain companies should tamper less with aggressive accounting and not be fraudulent. Thus, we agree with the concluding statement of this article "the best strategy for dealing with short sellers is to take pains to avoid placing your company under the microscope in the first place."

Week of activist shorts Q&As: Global Capital published an in-depth Q&A with Carson Block from Muddy Waters. As Mr. Block mentioned, they included some of his "more fun quotes", including this about US-listed Chinese stocks: 

 "These companies report whatever they want to report for the most part."

Another great Q&A was conducted with Safkhet's Fahmi Quadir this week by Financial News, where this short seller talks about process, what makes a good short seller, and says this about future of frauds:

"No matter what the markets do, fraud is a constant."

Finally, Q&A with Grizzly founder continued in ValueWalk. This time it was about profiling a fraudulent CEO. Girizzly Research, first short activist that highlighted GSX Techedu, will present a new short idea on Wednesday, June 3, during Contrarian Online Conference, which we are co-organising. 

From our activist short selling database, 2020 activist short targets that declined the most this week:

New Campaigns

Fifth UK short report in five months 

ShadowFall believes it found another dubious UK company after Bonitas targeted Pets at Home two weeks ago. The short-seller targeted boohoo (BOO), a $5.6bn online fashion retailer due to allegations of dubious accounting, future liabilities and potentially dangerous competition. 

Most importantly, the report talks about BOO's free cash flow figure which should have been misrepresented by 67% since 2014. This is due to the omission of tax payments and the fact that BOO does not own 100% in its most important subsidiary, Pretty Little Things (PLT).

The other important point is tied to the ownership structure of PLT which could also...

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* Note: Presented data and analytics is as of available on 2020-05-30, UTC 12:00.

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