Activist Shorts Weekly W11

Activist Shorts Weekly W11
  • This week, we have registered two new major short calls.
  • Hindenburg came out with its fourth campaign this year. As per usual, the heavy hitter delivered right from the start. Hindenburg alleged that the Polish company, LPP is dealing with Russia despite the war and sanctions. The shares are down as much as 37% on the first day of the report. 
  • Spruce Point targeted Enfusion, a tech company serving the financial sector, due to allegations of dubious revenue accounting and questionable corporate governance. The management team apparently has a poor track record, as some were involved with troubled entities that were charged by the SEC. The stock is flat for now.
  • Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a failed EV play, a struggling solar business, and a rebounding AI stock which caught the interest of retailers. 

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Bits and Pieces

  • Muddy Waters launches long-only Vietnam fund (via PIO)
  • Scorpion can record another win with its DNA campaign. The stock has reached their intended downside, but might go even further. 
  • The once battleground battery tech business is now down 63% since the activist first focused on it.
  • Supposed AI company is trying to beef up its financials, Wolfpack does not see much value. INOD is down 49% so far. 
  • Viceroy is going to soon update their campaign against the Swedish lumber company. The stock is up 9% so far. 
  • Culper sees over 20% drop in Acadia (ACAD) as the company fails drug test. The stock is down 26% for now. 
  • Another biotech win this week for Sumerian.

Big Movers


This week, we have seen plenty of stocks move in the right direction for the short-sellers. One of the biggest movers in the right direction was a campaign targeting Fisker (FSR), which plunged 57% in the past five days. It was Fuzzy Panda who targeted this EV play due to allegations of poor corporate governance.

Most importantly, the report believed the company has misled investors about its cash position. FSR apparently has large bank guarantees that it needs to maintain, which explains the large cash position. This means the company is likely to continue to fund its losses through ATM offerings which are going to hurt shareholder value and put the business at risk. 

The thesis has now played out in its entirety. The stock is down 79% so far and the recent drop was due to speculations of a bankruptcy filing as the business is not performing. Fuzzy Panda is wondering whether they should cover or not. 

Another significant win for the EV-focused activist. 

Another stock that somewhat went in the right direction for short-sellers was Sunrun (RUN), which is down about 24% in the past five days. The solar business was targeted by Muddy Waters due to allegations of a dubious business model. However other activists such as Kynikos has also piled on and continued to monitor the situation.

Most importantly, Muddy's report believed the company could face a dire need for equity issuance to stay afloat. First, RUN is allegedly overestimating the value of their current assets due to the use of questionable accounting. Muddy adjusts 'Net Earnings Assets' down as much as 90%. Second, the company is apparently misleading IRS about its Power Purchase agreements. Third, RUN's ABS securitization could expose the holders to the bankruptcy of the company due to a lack of reserve. 

RUN has been somewhat of a difficult campaign. The stock has a tendency to whipsaw against short-sellers as the market suddenly becomes interested in solar. Now that the tables have turned as the company continues to report troublesome numbers which support the initial thesis focus on an uneconomic business model. The stock is down 34% since the initial report. Moreover, the political climate is also not as friendly. While Muddy did not update their thesis, a couple of bears on Twitter shared their view amid the recent drop. 

On the other side of the tracks, we have seen several stocks go against the short-sellers. One of the biggest movers was Soundhound (SOUN), which jumped about 42% in the past five days. Most recently, this speech recognition company turned AI play has been targeted by Capybara Research due to allegations of a poor business model. Before that Culper raised similar allegations. 

Most importantly, the report believed the company is using the recent AI boom to talk up its share price. The market recently pushed up SOUN due to the stake of NVDA in the company. However, that investment is not new; it came in 2017. The CEO used this to insinuate potential deals, while the reality apparently suggests no such interest, given SOUN's track record of burning over $500m in shareholder cash. 

As with other Capybara campaigns, they are taking a position in heavy retail names, which tend to have the risk of completely going against them for some time. SOUN might be another one. Twitter traders and Redditors are all over the company despite it not reporting anything overly significant. They are chasing the gains, but it seems some already started to turn as the valuation does not make much sense. 

Capybara is saying the opportunity is ripe and an update is coming. 

SOUN investors should be aware of Capybara's track record. All other campaigns are successful, with all of the stocks down at least 50%. 

    Heavy Hitter Hindenburg 

    This week, we also saw the return of Hindenburg and what an impact they made right away. The activist targeted LPP, a $8.4bn fashion retailer based in Poland, due to allegations of fraudulent corporate governance.

    Most importantly, the report believes the company's apparent effort to divest the Russian operations following the war in Ukraine was just a sham. LPP apparently finalized a transaction with a vague counterparty, but in reality, they continued to benefit from the Russian market. The entities involved in the transaction where LPP was selling the Russian assets are filled with significant red flags, such as the date of incorporation just one day before the transaction. 

    Moreover, Hindenburg also went into the Russian stores and checked LPP items sold. They match the Polish offer, meaning that LPP still manages to get their inventory into the country. This is likely behind the 40% revenue growth that the company reported, without saying most of it comes from Russia. 

    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 likely face legal risk. The stock started to slide immediately and is down as much as 37%l.

    The company scrambled to respond and came out with the classic denial of allegations, albeit with a twist. LPP definitely included a lot more language aimed at Hindenburg's international campaigns, such as Adani, and LPP likely tries to paint Hindenburg as an actor connected to international security agencies. Polish fintwit is mostly neutral, with some bears and bulls but no apparent strong reaction. 

      New Campaigns 

      Spruce Point : Enfusion (ENFN) - Up 0.1%

      • The activist targeted this $1.2bn tech company due to allegations of dubious accounting and poor business model. 
      • Most importantly, the report believes the revenue accounting raises red flags. The company apparently quietly revised certain accounting without explaining much. The account receivables are also going down while revenue is increasing which allegedly does not make much sense. Spruce believes revenue overstatement risk is large. 
      • Moreover, ENFN's management supposedly has a tainted track record. The company had a significant turnaround at key C-level positions. The current CEO apparently served as Director of Risk management at an investment firm when the SEC decided to charge them with illegal trade scheme. The CFO was employed as CAO of General Electric during a time when the company settled with the SEC regarding its accounting. 
      • Due to all this, the short-seller sees up to 60% downside opportunity. The market is likely to eventually sell the shares as the company will have to clarify its accounting and potentially disappoint street expectations. 

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      * Note: Presented data and analytics is as of available on 2024-03-15 UTC 12:00.

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