Activist Short Selling in W37

Activist Short Selling in W37
  • This week we have registered three new major activist shorts campaigns.
  • We saw Muddy Waters target Danimer, a stock that was previously written about by Spruce Point. Muddy Waters alleges a barrage of claims which are supposedly raising significant questions about the viability of the business. 
  • Over the weekend, we also saw the public release of the new ShadowFall campaign in the press. The European activist targeted Civitas Social Housing, a British company focused on care homes. 
  • Lastly, we are tracking the most recent stock price gyrations at several previous targets and the third new campaign, which celebrated early success. We feature a dubious biotech, a questionable medical device company and a struggling tech player.

Bits and Pieces

  • Block of Muddy Waters - "The biggest factor for short-sellers, and often the most overlooked, is actually passive investing." 
  • Korea and Short-selling - Fears surrounding short selling escalate again
  • SEC Chair Gensler defends Reddit, GameStop investors’ right to ‘smash’ short-sellers
  • Iceberg Research increased their AMC short

Get most popular retail stocks. Track real time retail sentiment and popularity via our APIs and dashboards.

Big Movers

This week’s we saw several stocks that moved in the right direction for the short-sellers. One of the biggest movers was a new campaign by Scorpion Capital. Berkley Lights (BLI) is down this week 23%. This medical device company was targeted due to allegations of dubious product and corporate governance red flags.

Most importantly, the report believes the company will not sell many more of their machines with a $2m price tag. The alleged reason behind this is that BLI failed to create any innovation with its product despite its language, which suggests the machine is well ahead of other market solutions. Scorpion believes the machine is based on old technology, and other much cheaper machines do the same job. According to the short seller, this is supported by a plethora of interviews of former employees, customers and academia.

Moreover, even if the machine is supposedly an innovation, the short-seller is startled to see that only a handful of devices have been sold in the past five years since the launch. As per Scorpion, the situation is also apparently getting worse as their revenue is slowing down. According to the short seller, this is not helpful when they are valued at roughly 27x sales, while the revenue composition also raises red flags (alleged possible start of stuffing the channels and lack of usage of older machines). 

Due to all this, the short-seller sees a significant downside opportunity, with zero being a possible scenario here due to the severity of the allegations. 

The market quickly reacted to the report, and since Scorpion released it, the stock is down about 17%, accounting for most of the drop this week. Twitter was split as per usual, but some other short-sellers have supported Scorpion as per below. 

Others went out and provided counter-arguments. Here is a thread by an analyst at ARK, a fund management company that owns shares in BLI. 

The company did offer a comment on Friday via 8-K and called Scorpion:

"a self-proclaimed short seller."

Given the rapid reactions so far, it will be interesting to scrutinise future developments. 

On the other side of the tracks, several stocks have moved against short-sellers. The most significant surge was seen in Cytodyn (CYDY), which has been up over 45% in the past five days. This biotech focused on COVID19 is a long-term short of several activists. While a lot of the downside has already transpired and their thesis was proven correct, the stock continues to be volatile. The recent run-up is likely caused by the excitement of data coming in from their Brazilian trial concerning COVID. Many short-sellers on Twitter were sceptical, given the background of the company. 

Another stock that saw positive momentum is Lightwave Logic (LWLG) which is up over 13%. This stock was targeted by White Diamond Research due to allegations of dubious track record and product. 

Most importantly, the report believes the company has been struggling to create a commercial product for the past 20+ years. The short seller also riased following allegations: They still do not generate any revenue from this. The competition also seems to be getting ahead and has institutional backing. LWLG is almost exclusively held by retail investors and apparently did not attract any serious partners. Moreover, the track record of the CEO is raising red flags. His past employment engagements were usually at companies that went nowhere. 

The stock went up this week due to news of a world-record performance of its product. White Diamond acknowledged it but said that they would like to scrutinize the paper behind the achievement, which is, according to the short seller, nowhere to be found yet. Thus both bulls and bears are likely to talk about the stock in the upcoming days. 

Muddy targets Danimer, a previous campaign of Spruce 

This week we also saw a new campaign by Muddy Waters. The activist targeted this $1.68bn bioplastics company due to allegations of dubious business model and misleading investors.

Most importantly, the report believes the company has oversold its dreams to the market...

(Stay on top of short selling developments - Join Breakout Point).

FAQ | Q: Can I publish parts of the above data and analytics in an article? A: As long as you reference our work in your article - yes, you can.

FAQ | Q: Could you provide more related data and analytics? A: Sure, join Breakout Point and start benefitng from our services.

* Note: Presented data and analytics is as of available on 2021-09-18 UTC 11:00.

The services and any information provided by Breakout Point or on the Breakout Point website shall not be or construed to be any advice, guidance or recommendation to take, or not to take, any actions or decisions in relation to any investment, divestment or the purchase or sale of any assets, shares, participations or any securities of any kind. Any information obtained through Breakout Point and its services should never be used as a substitute for financial or other professional advice. Any decisions based on, or taken by use of, information obtained through Breakout Point and by its services are entirely at own risk.