🐻The Bear Cave #14🐻

New Activist Reports, Questionable Behavior at Smartsheet, and Much More

May 18, 2020

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New Activist Reports

An anonymous Seeking Alpha blog published a 7-part investigation into the pet insurance company, Trupanion (NASDAQ: TRUP — $972 million).

Spruce Point Capital published a strong sell opinion on Forescout Technologies (NASDAQ: FSCT — $1.45 billion) highlighting concerns that its private equity buyer, Advent, might walk away.

Bonitas Research questioned the accounting and disclosures of the U.K.’s biggest pet supplies retailer, Pets At Home (London: PETS — $1.14 billion). Bonitas wrote,

“As investors consider PETS’ hidden liabilities, its low earnings quality from circular payments and inflated carrying balances for certain assets, we think PETS’ stock price could break previous lows with a downside of 75%+.”

Culper Research published an update on the healthcare company Catasys (NASDAQ: CATS — $361 million). Culper wrote,

“Our original report criticized the apparent ways in which the Company inflates member retention rate, which we believe is less than the claimed 80%. Yesterday’s call only cast further doubt on these figures.”

White Diamond Research published on Canaan Inc (NASDAQ: CAN — $688 million). The China-based bitcoin mining hardware maker was previously criticized by Marcus Aurelius Research, which wrote,

“Our investigation of this bitcoin mining machine maker reveals undisclosed related party transactions, irregularities involving many customers and distributors, as well as a business model that we view as broken.”

The stock is down about 50% since its November 2019 IPO.

Hindenburg Research published a report on China Metal Resources Utilization (HKG: 1636 — $7.42 billion HKD) writing,

“We believe that China Metal Resources Utilization is nothing more than a ‘zombie company’; an entity technically alive, but under such severe financial distress and laden with so many red flags, that insolvency seems inevitable.”

Hindenburg Research also put out a Twitter thread on why it was short Co-Diagnostics Inc (NASDAQ: CODX — $607 million):

Hindenburg Research @HindenburgRes

We are short $CODX due to its CFO’s checkered history, involvement with companies halted by the SEC, its astronomical valuation, a growing list of higher quality COVID tests & its propensity to issue frequent fluffy press releases.

Muddy Waters shared an update on Burford Capital (LSE: BUR —$942 million).

Buyersstrike wrote about Cytodyn (OTC: CYDY — $1.47 billion) and its alleged ties to felons.

Biotech Research Partners, a new activist, published a 12-slide presentation on Akebia Therapeutics (NASDAQ: AKBA — $1.75 billion) and its “sins of omission.”

More Red Flags at Smartsheet

Last week we highlighted problems at Smartsheet (NYSE: SMAR — $6.31 billion):

In the last 60 days, Smartsheet disclosed material weaknesses in financial reporting, dismissed its auditor, and announced that its CFO would retire. Despite these red flags, Smartsheet, which makes collaborative work management software, trades at all-time highs and currently sells for 25x revenue.

We have uncovered more red flags: accounts receivable as a percent of revenue are at an all-time high, questionable new risk factors in its 10-K, and the fact Smartsheet has never missed revenue estimates since going public.

You can read our full Twitter thread on the topic below:

Edwin Dorsey @StockJabber

Something is really wrong at Smartsheet $SMAR 1) New accounting risk factors 2) Auditor finds material weaknesses 3) Auditor fired the day before Q1 ends 4) Audit partner had a bad history 5) CFO “retired” 6) Stock at all-time highs 🤔 Let’s explore (thread)

Smartsheet’s Q1 earnings will be released on June 3. This will be their first earnings since dismissing PwC as their auditor – one day before the quarter ended.

What to Read

“‘What Did He Just Say?’: Boeing CEO’s Prediction Irks Airlines” (WSJ)

“American Airlines Group CEO Doug Parker called the Boeing chief this week to express surprise and disappointment after Mr. Calhoun told a television interviewer that a major U.S. airline would most likely go out of business by this fall, one of these people said.”

“Potbelly settlement with activists includes twist: stock, not cash, for outlays” (Reuters)

“Sandwich maker Potbelly Corp on Monday promised to reimburse activist shareholders’ expenses with stock not cash, creating a situation that lawyers call an outlier for now but which they said could find traction in tough economic times.”

“Luckin Coffee Terminates CEO Jenny Qian Amid Investigation Into Fabricated Sales” (WSJ)

“Luckin Coffee Inc. said its board of directors has terminated chief executive Jenny Qian amid a deepening internal investigation into the company’s fabricated sales, suggesting she played a role in a scheme to inflate its revenue.”

“As PG&E Fire Victims Weigh Settlement, Lawyer’s Role Attracts Scrutiny” (WSJ)

“Mikal Watts helped broker a proposed $13.5 billion deal to resolve claims. He has a financial connection to some of the utility’s largest investors.”