- This week, we have registered two new major short calls.
- Ragnarok seems to be settling in the activist space and continues to target small caps which are trying to use the AI hype to drive their stock price. This time, they targeted a $200m medtech business due to allegations of a dubious business model. The company's latest pivot to AI is unlikely actually to mean much.
- We also saw Dalrymple Finance target a large investment holding company which is centred around its yield. The activist targeted the stock due to allegations of dubious accounting and questionable business model. Most importantly, the report believes the company overstates the asset values in its portfolio.
- Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a struggling recycling company, a failing tech business and a REIT refusing to throw in the towel.
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Bits and Pieces
- Muddy reshorts SunRun (RUN) as problems persist. The stock is down 66% since Muddy's initial report talking about allegations of RUN's dubious business model.
MW is again short Sunrun ($RUN) bc we believe that RUN significantly inflates the number of Subscribers it reports. As of Q2, RUN reported ~725K Subscribers. Data RUN provides to the U.S. Energy Information Agency shows only ~600K Subscribers https://t.co/uNtPkcwAZz— MuddyWatersResearch (@muddywatersre) October 25, 2023
- Bleecker sees further downside for this lithium miner. The drop is apparently just the beginning. ATLX is down 29% since Bleecker's first report.
Last quarter, the company stated that the company's Maiden Resource Report would be released at the end of Q3. On Friday, they changed the sentence to indicate a completion date of Q1 2024.— Bleecker Street Research (@Bleecker__St) October 23, 2023
- Scorpion sees IONQ's story unravelling. However, the stock is still somewhat resilient. The shares are up 26% since the initial report.
$IONQ Chief Science Officer and co-founder Chris Monroe has resigned. He’s the academic heavyweight around which this quantum computing pump and dump was built. In our opinion, Monroe and his co-founder Jungsang Kim illustrate the role of academic corruption in stock promotions… https://t.co/YfRkbzUGAjpic.twitter.com/MKCDW8pLN7— Scorpion Capital (@ScorpionFund) October 24, 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 Li-Cycle Holdings (LICY), which plunged 41% in the past five days. Initially, it was Blue Orca who targeted this recycling company due to allegations of poor corporate governance, dubious business model and questionable accounting.
Most importantly, the report believed the company is using Enron-like accounting. It uses mark-to-market accounting of its product which leads to booking sales before the actual cash exchanges hand. Orca estimates 45% of the most recent quarterly revenue was allegedly made-up by creating receivables for a product that is yet to be sold.
The thesis has now played out. The stock is down 65% in the past month, and it is down 84% since Blue Orca wrote about the situation last year. The recent plunge was caused by business developments which pointed to a pause of work on their main project. This created huge uncertainty, and traders were quick to drop their optimism. Blue Orca did not comment, but Twitter traders did not put up a fight and mostly turned cautious about any of the previous bullish points.
Another stock that went in the right direction for short-sellers was Vicor (VICR), which is down more than 22% in the past five days. Initially, it was Akram's Razor who targeted this tech company due to allegations of overvaluation.
Most importantly, the report believed the stock has enjoyed a pop due to the recent AI craze and Nvidia rally, but in reality, the company stands to lose out in the AI race. Their business has been eroded over the years as their technology edge apparently does not stand out anymore as it did in the early days.
Akram has done it once again. VICR came out with its quarterly results in the middle of the week and the stock plunged over 20% as the thesis has been confirmed. Twitter traders were calling VICR's blow-up just another symptom of the AI bubble slowly bursting. Akram notched another clear win, and the activist is yet to be proven wrong on their public calls. The only campaign that remains open for Akram is Sprout Social (SPT), but the stock also plunged significantly a month after the call but did not yet hit the intended downside.
On the other side of the tracks, we have seen only a handful of stocks go against the short-sellers. One of the 'biggest' movers was Medical Properties Trust (MPW), which jumped about 9% in the past five days. Initially, it was Viceroy who targeted this healthcare REIT due to allegations of dubious business model and questionable revenue.
Most importantly, the report believed the company has been entering into transactions which do not make much economic sense. For example, according to Viceroy, MPW has routinely entered into sale-leaseback transactions with tenants who are financially distressed. MPW allegedly overpaid for these properties. This and other transactions then apparently inflate the value of MPW's portfolio.
It has been a long and protracted battle for Viceroy. The company is now even suing the activist. However, the activist is still winning. The stock is now down 58% since its initial report. That being said it seems the market still feels there is an opportunity. The recent jump was caused by seemingly positive quarterly results, which pushed against some of Viceroy's points. However, Viceroy and other bears quickly jumped on the numbers and maintained that nothing had changed. There was pushback from several bulls and the intensity has somewhat reminded us of the start of the campaign.
This week, we also saw two new campaigns. Short-sellers are taking a bit of a break after a busy last week, when we saw six new campaigns. The first report to come out was by Dalrymple Finance. The activist targeted Brookfield Infrastructure Partners (BIP), a $10.6bn investment holding yieldco, due to allegations of dubious accounting and questionable business model.
Most importantly, the report believes the company overstates the asset values in its portfolio. As per the activist, apparently, the assets are overstated by roughly 24%, with some investments likely reaching zero asset value given the underlying fundamentals. According to Dalrymple Finance, BIP also tries to portray the health of the investments by showcasing allegedly inflated FFO coming from the investments, while BIP actually had to inject cash into some.
BUUK is ~13% of $BIP NAV. BUUK uses an unusual accounting election that inflates cashflows. I estmate that more than 50% of cashflows are ~0% margin. I believe the only purprose of the accounting is to inflate BIP cashflows. Gaming financial statements.— Keith Dalrymple (@Jonathan_Keith2) October 24, 2023
Moreover, BIP's distributions are not covered by cash flows. They apparently pay out about 2x what they can actually get from their investments. The management fees also allegedly motivate asset purchases but not profitability or growth of distributions to unit holders.
Below I compare FFO booked from equity accounted investments with cash actually received from them.— Keith Dalrymple (@Jonathan_Keith2) October 25, 2023
On average, they collect $0.34 for every $1 FFO booked.
Still think $BIP's payout is reasonable? Me neither. pic.twitter.com/1Q56GfSkpn
Due to all this, the short-seller sees a significant downside opportunity. As per the activist, BIP trades at a premium to NAV, while comparable stocks trade below NAV.
The stock did not react much at first. The shares are down about 3% since the report published on Tuesday. However, BIP was already in a significant downtrend at the time of the release. The stock is down 22% in the past month alone and down 35% in the past six months.
Another report we saw this week was by Ragnarok Research. This team continues to track what they believe to be AI hype stocks. This time, they wrote about Augmedix (AUGX), a $200m medtech business, due to allegations of a dubious business model.
Most importantly, the report believes the company's latest AI pivot is unlikely to be based on real fundamentals. The company's AI tech might actually be just built on what Google already did with their processing AI models. AUGX is also apparently using a large number of scribes in Bangladesh who rewrite the recorded transcripts. The AI pivot should help to lighten the load, but apparently, it only got worse.
Moreover, AUGX's CEO is allegedly promotional and has been known to post frequently on Reddit to the detriment of the bullish thesis.
Due to all this, the short-seller sees a significant downside opportunity. The market is likely to eventually sell the shares as the company will simply not generate much value from its AI pivot. The recent share price increase was premature.
The stock sold off on the day of the report and is now down 13%. Twitter was quiet, apart from a few bears who agreed with Ragnarok and shared similar findings.
AI medical scribe also seems crowded already with plenty of other funded startups like DeepScribe, Suki, ScribeLink and others. Incumbents like Microsoft Nuance are also all integrating AI.$AUGX has a huge amount of inflated hype built into the stock price at current levels.— TheGribbler (@TheGribblerOG) October 25, 2023
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