- This week, we have registered three new major short calls.
- Perhaps most importantly we noticed Kerrisdale Capital with their new retail investors short. They targeted Tilray (TLRY) due to allegations of a weak business model. The stock recently rallied, but the activist does not believe the rally has legs. The company is unlikely to benefit from the US administration's shift to relax cannabis laws. Kerrisdale has not seen TLRY short-squeeze so far, and the stock is down about 20%.
- We also report a new report by Spruce Point who targeted Samsara Inc. (IOT), a supposedly dubious IOT business, which has supposedly tendencies to use aggressive accounting. The last report released was by a newcomer who wrote about TROOPS, Inc. (TROO), a US-listed HK-based money lending business, due to heavy allegations of fraud. Wolfpack previously wrote about the same company, and the shares are down about 33% since.
- Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a questionable quantum computing story, a dubious social media platform and an insurance company refusing to go down.
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Bits and Pieces
- Jehoshaphat Research coming out of the shadows (with Breakout Point data)
One day my son would be old enough to ask me, "Why do you hide?" I've never been able to think of an answer that would be appropriate for a little boy to hear from his father.— Jehoshaphat Research (@JehoshaphatRsch) September 19, 2023
So now, the real fun begins. It's nice to meet you all.
- Vic https://t.co/8hrecMoRzz
- Scorpion has ongoing conversations with the FDA about Harmony (HRMY). The stock is still down only about 13% since the initial report talking about allegations of a fraudulent drug.
Minutes ago, the FDA replied to our Citizen Petition requesting withdrawal of approval of $HRMY Harmony Biosciences' drug Wakix. We are pleased that the FDA Is taking our concerns seriously, and view the interim response as ominous for Harmony:— Scorpion Capital (@ScorpionFund) September 21, 2023
"FDA has been unable to reach a…
- White Diamond Research is close to another decisive win as Pulse Biosciences Inc (PLSE) is down 45% since their report in late August highlighted allegations of dubious product.
$PLSE closed yesterday down 45% since we published a bearish report on them on 8/24/23. No insiders have bought any shares on the drop, including their highly touted billionaire investor and Chairman Robert Duggan.— White Diamond (@WhiteResearch) September 21, 2023
They haven't responded to the report. Today, they are doing an…
- Viceroy sees new red flags over at Hexagon (HEXAB), one of their 'slower' campaigns. The stock is down only 16% so far since the initial report talking precisely about these undisclosed related party transactions.
Another red flag. Are @HexagonAB &/or Divergent attempting to change history? After $HEXAB C suite were caught front running an investment via @greenbridge_lu in Divergent with undisclosed related party investments, Fig 1 changed & redirected to Fig 2. $HEXABpic.twitter.com/9yCJ0qpv7b— Viceroy (@viceroyresearch) September 20, 2023
This week, we have seen several stocks move in the right direction for the short-sellers. One of the biggest movers in the right direction was a new campaign targeting Rumble (RUM), which plunged 23% in the past five days. It was Culper Research who targeted this social media company due to allegations of lying to shareholders and the market.
Most importantly, the report believed the company has inflated its user base by over 60%. The activist dug out estimates of third-party firms focused on tracking traffic, and both estimate substantially fewer organic views and users. Apparently, the company also overcounts by counting multiple devices from single users, among other tactics such as obfuscating disclosure regarding user numbers.
Culper believes the downside opportunity only started as per below.
"I'm just gonna shoot from the hip" says $RUM CEO @chrispavlovski before reciting an obviously scripted monologue.— Culper (@CulperResearch) September 21, 2023
Just as fake as $RUM's earlier claims to have 100 million MAUs.
Shares another -6% today and -36% since our initial report. https://t.co/cJS7c3O28C
It is likely that the recent downturn was prompted by the lock-up expiring, which perhaps means many insiders are trying to sell their stock and put pressure on the share price.
Another stock that went in the right direction for short-sellers was IonQ (IONQ), which is down more than 20% in the past five days. This quantum computing company was initially targeted by Scorpion Capital due to allegations of fraud.
Most importantly, the report believed IONQ's main purported asset, a 32-qubit quantum computer, does not exist. This has been corroborated by interviews with relevant people many of whom questioned the existence of the computer. What IONQ does apparently have is an old version of a much lower performance computer which features significant errors and does not compare to what the competition has.
IONQ has been a stubborn stock and is still up over 70% since Scorpion first wrote about it. It has been on a volatile ride as the management team has seized upon the AI hype and started to talk about their own 'ChatGPT moment' in order to show that they are supposedly close to a major breakthrough. The Twitter chatter is mostly filled with this narrative. Scorpion did not update their thesis for a while, but the last time they mentioned the stock, they said that the management is likely realizing who can continue to support their stock throughout the volatile ride.
$IONQ appears to have figured out last year that they’re a Korean retail meme stock. Co-founder Kim is an active presence in the Korean media fueling quantum hype. Latest screen grab from a local pumper’s barrage of YouTube videos. Last year it was the 6th most widely held intl… https://t.co/eeElF1NjRGpic.twitter.com/3wX2vAo5M3— Scorpion Capital (@ScorpionFund) June 28, 2023
On the other side of the tracks, we saw only a few stocks going against short-sellers in a major way. One of the 'biggest' movers was Goosehead Insurance (GSHD), which jumped about 6% in the past five days. It was Wolfpack who targeted this $1.6bn insurance broker due to allegations of questionable business model.
Most importantly, the report believed the company is facing a significant challenge in maintaining a healthy franchise business. The failure of franchise partners is increasing, and it is unlikely to stop for some time. The management is apparently trying to spin it in a positive light, but according to Wolfpack, the reality is dire and will cost the shareholders.
The thesis has been ignored by the market. The company delivered revenue growth, which somehow is enough to support the share price these days. They also reported Non-GAAP profitability, which might also be another reason why investors did not agree with Wolfpack. The activist did not update their thesis, and since the initial report, the stock is up over 80%. Twitter chatter is mostly positive and consists of relatively famous retail accounts that are bullish and connect GSHD with other popular tickers such as CVNA etc.
Kerrisdale is back at it...
This week we also saw three new reports. We are curious to see how Kerrisdale will navigate their next retail short. The activist, who does not shy away from writing reports on some of the most popular retail stocks, decided to write up why Tilray's recent rally does not make sense. The activist targeted this $2bn cannabis stock due to allegations of a poor business model.
Most importantly, the report believes the company's fundamentals are simply uneconomic, and the management has failed to change this, resorting to diluting shareholders. In order to support its share price, TLRY apparently started to pay key operating partner in stock instead of cash. This supposedly inflated profits and would result in zero EBITDA and deeply negative cash flow had they paid the partner in cash. The company recently tried to diversify into craft beer, but the brands are apparently declining and have low margins.
Borrowing a penny stock tactic, $TLRY materially inflates adjusted EBITDA and free cash flow by directly paying a key supplier in large amounts of stock. Hiding behind poor disclosures, $TLRY has gone from making payments in cash in ‘21 to $100m in stock over last two yrs (4/9)— Kerrisdale Capital (@KerrisdaleCap) September 18, 2023
Moreover, investors recently pushed up TLRY's price due to news about the US administration coming closer to rescheduling marijuana. However, the activist sees this as misguided. TLRY is not likely to benefit from the rescheduling as they still could not grow their revenue properly in the US. The rescheduling would also not help TLRY with its plan to sell THC-infused drinks.
Schedule 3 does nothing to help Tilray sell recreational products or THC infused drinks. None of the financial benefits of rescheduling – tax savings, exchange uplisting, progress on SAFE Banking – help $TLRY, they only help Tilray’s potential US competitors. (3/9)— Kerrisdale Capital (@KerrisdaleCap) September 18, 2023
Due to all this, the short-seller sees a significant downside of around 70%. The market is likely to eventually sell the shares as the recent rally is not sustainable, and the financials will continue to show deterioration.
The company did not react to the report, but Twitter traders quickly offered their take on Kerrisdale's research. Probably the biggest underlying reaction was that Kerrisdale will again face a short squeeze as per below (Note: With the exception of two stocks lmentioned below, all other retail investors' popular stocks for declined significantly after Kerrisdale's report).
There is not much chatter that somehow contradicts what Kerrisdale is saying. However, the market is siding with Kerrisdale for now, and it seems another squeeze might not be in the book, at least for now. The stock is down 17% so far.
Apart from Kerrisdale, we also saw a new report published by Spruce Point, who continues to scour the tech space for short-selling opportunities. The activist targeted Samsara (IOT), a $13.5bn IT services company, due to allegations of dubious accounting and poor business model.
Most importantly, the report believes the company is significantly overstating its gross and EBITDA margins by using a questionable amortization model for device costs. The activist used FOIAs to see customer contracts and found out many are on contracts for three or fewer years as opposed to a 5-year amortization plan. This apparently is not a surprise given that IOT's CAO is tied to VMware at a period when the SEC charged it with misleading financials.
(2) Recast $IOT financials with a 3 year hardware amortization (and commission cost) assumption and it's obvious EBITDA margins are massively inflated. And what would margins look like if you consider their issuance of stock comp like water to employees? Wow -50% Adj EBITDA… pic.twitter.com/o0kL7cjwwB— Spruce Point Capital (@sprucepointcap) September 21, 2023
Moreover, the company's business success is fleeting and is isolated to certain niche applications which are unlikely to be easily replicable. They are also exposed to a hardware element which should give the stock a discount to pure-play SaaS or IoT businesses. IOT's peers are also more profitable and showcase revenue growth strength without the need to aggressively spend more money.
There is virtually no case where $IOT is worth 16x sales. You'd have to hold your breath given that the highest multiple paid for vehicle telematics companies were 7x and that was years ago already (pre-ELD federal mandate) when the industry was less mature than today. That… pic.twitter.com/Z6NV8qskQH— Spruce Point Capital (@sprucepointcap) September 21, 2023
Due to all this, the short-seller sees a significant downside opportunity of up to 75%. The market is likely to eventually sell the shares as the company is not going to be able to remain competitive with its troubled financials in the crowded IoT and SaaS space.
The market did not push back against this narrative as the shares did drop about 6%. Twitter reactions were also muted, but some pointed out that the valuation alone is troubling at IOT. There weren't many bulls trying to convince everyone that Spruce is wrong.
Lastly, we also want to highlight a curious case of a new report on Troops (TROO). A newcomer Anathema Research, released their thoughts on this $413m US-listed HK-based lending business due to allegations of fraud.
Most importantly, the activist believes the majority of TROO’s subsidiaries are non-operating. Their SEC filings suggest out-of-the-world creative valuation and contain nonsensical acquisitions. The business is allegedly actively siphoning money from investors to specific individuals through dubious loans.
Moreover, the company's major shareholders are apparently mostly connected to previous frauds, not only the well-documented case of Axa which involved many of TROO's shareholders.
Due to all this, the short-seller sees a significant downside opportunity. The market is likely to eventually sell shares once the reality of the business comes out.
The report seems to be expanding on the existing work of Wolfpack Research from 2021 who targeted the company due to allegations of serious corporate governance breaches. Most importantly, the report believed the key insiders and large shareholders of the company had been arrested and named as 'masterminds' of an international fund fraud.
However, despite the strong allegations first lobbed by Wolfpack, the stock is down only about 33% since that initial report. The Twitter reaction to Anathema was non-existent, as there are not many accounts actively discussing the story.
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* Note: Presented data and analytics is as of available on 2023-09-22 UTC 12:00.
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