Activist Shorts Weekly W25

Activist Shorts Weekly W25
  • This week, we have registered one new major call. 
  • A newcomer skeptic targeted a crypto-related stock due to allegations of overvaluation and a dubious promotional scheme. The company is also tied to a well-known influencer in the space. He is a shareholder and seemingly did tout the shares on his substack. The company also apparently utilized a marketing firm that started to send many emails. Therefore, as per this activist, the recent rise of over 3,000% might not be tied to fundamentals. The report started a fierce debate on Twitter. 
  • Lastly, we are tracking the most recent stock price gyrations at several previous targets. We focus on a struggling solar business, a rebounding fitness company, and a resurgence in shares of a datacenter-related business. 

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Bits and Pieces

Big Movers

This week, we have seen plenty of stocks move in the right direction for the short-sellers. One of the biggest movers that went in the right direction for short-sellers was the campaign targeting SMA Solar (S92) which is down about 29% in the past five days. It was NINGI who wrote about the solar business due to allegations of questionable accounting.

Most importantly, the report believed the company has been improperly capitalizing its expenses. SMA is apparently using a specific subaccount which is not tested for impairment and does not amortize. This allowed the business to supposedly hide expenses and improve their profitability. This accounting is allegedly not compliant with IFRS standards and the company is allegedly actively trying to obscure the process. 

It seems the thesis has now played out. The shares plunged after a profit warning, which confirms some of the allegations raised in the report. The activist was quick to comment on the developments and signaled that the situation was not finished.

The stock is now down over 50% since the initial report which was released in December last year, well ahead of the profit warning.

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 Xponential Fitness (XPOF), which jumped by about 39% in the past five days. Fuzzy Panda was the activist focusing on this fitness company due to allegations of dubious corporate governance and a broken business model. 

Most importantly, the report believes the company's founder has several red flags in his corporate history. He was apparently connected to a penny stock that used Bangkok boiler rooms to try and increase the share price. He was also sued several times due to fraudulent allegations, and many people have called him a crook. 

The stock started to rebound after the market got to know the new CEO of XPOF who apparently has a solid track record as opposed to the previous one. Many traders are especially happy with the compensation, which relies heavily on getting the share price back up. Many said that the thesis has played out or that it was misguided and that the shares are now trading without this overhang. Despite the share price jump, the stock is still down about 37% since the initial report. Fuzzy did not comment on the recent developments. 

Another stock that did not go in the way of the short-sellers was Applied Digital (APLD) which is up 38% in the past five days. APLD was targeted by three short-sellers with Friendly Bear being the latest one. The activist targeted this datacenter company due to allegations of dubious corporate governance. 

Most importantly, the report talked about APLD's dealings with RILY and how the investment bank is allegedly controlling managerial decisions to the detriment of APLD's shareholders. One example is APLD's decision to pay down debt from RILY ahead of maturity at a time when RILY needed cash for an acquisition. 

It seems the RILY connections are no longer pressuring the stock. Instead, the market is getting excited as APLD is apparently well-positioned to address the demand for new AI data centers. Even some prominent short-sellers seemed to have agreed with this macro theme. APLD might still have underlying issues, but the bullish AI arguments are now winning. The original activists did not offer comments regarding the share price action. All this being said, the stock is still down over 39% since Friendly Bear wrote about it. 

Crypto pump? 

This week, we also saw a new campaign released by a newcomer skeptic from the crypto-related space. CoinSnacks targeted Defi Technologies Inc., a $409m crypto-related company, due to allegations of dubious valuation.

Most importantly, the report talks about the recent push by several influencers and email campaigns that painted DEFTF as an undervalued crypto play while the core business did not seem to change enough to warrant any major price change. Despite this, the supposed marketing push has allegedly helped to lift the stock by over 3,000% in the past twelve months. 

Moreover, the report goes on to question the involvement of a prominent influencer in the space. His research firm was bought out by DEFTF early in the year, and he then turned around and started to hype the stock up alongside a fund manager who even mentioned it on CNBC. The report also talks about the involvement of other entities that have recently written about DEFTF.

Due to all this, the activist sees a significant downside opportunity. The market is likely to eventually sell the shares as the valuation got ahead of itself without much change in the nature of the operations. The report hit hard as the market sold off DEFTF shares. The stock is now down 36% since the release.

While the initial reaction of the market seemed to have been favorable, the tables turned quickly, and bulls went out in force on Twitter and argued that the valuation is sensible given the net income the company might earn in the next twelve months. The company also responded to the report and tried to portray CoinSnacks as an activist with short-seller ties which the bulls seemed to have been happy to take further. They are trying to discredit CoinSnacks as a promotional newsletter in their own right. The publication rejected the short-seller ties in their own update.

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* Note: Presented data and analytics is as of available on 2024-06-21 UTC 12:00.

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