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Spruce Point Capital Management To Issue A Critical New Strong Sell Opinion Tomorrow On Another Megacap

Sep. 04, 2019 5:17 PM ETSPDR® S&P 500 ETF Trust (SPY)
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Ben Axler's Blog
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  • We will explain our short position in a broadly owned name, that under new management, we believe has charted a dangerous new path.
  • We will demonstrate why we believe management is using a variety of tactics to inflate performance, and fleece investors in a covert way.
  • We've dug into the current CEO's past. Investors should be concerned that many years ago he oversaw a company that failed investors miserably, evenissuing a "non-reliance" opinion on its financials.
  • Our report will consist of detailed former employee interviews, and unique data points showing why we believe recently levered acquisitions are struggling.
  • With the stock above the average analyst target, it has a terrible risk / reward. Recent names we've exposed exhibiting similar characteristics (IRBT, MTD,PEN) have collapsed.

Tomorrow we will issue a new critical "Strong Sell" opinion explaining our short position in a well known Company ("the Company") that has penetrated the stock portfolios of unsuspecting investors through relentless promotion.

The full contents of our report will be available on our website. We also encourage readers to follow us on Twitter @sprucepointcap

Now a broadly owned megacap, we will explain why we believe new management has changed course and is using a variety of financial and accounting tactics designed to inflate and obscure its increasingly leveraged and decaying business. In the process, we will illustrate how the current management team is fleecing investors with financial slightness-of-hand, while the Chief Accounting Officer "CAO" is dumping undisclosed stock through covert means. Perhaps, the CAO is keenly aware, as we are, that years ago the current CEO oversaw a different company that issued a "non-reliance" statement on its financials.

Furthermore, we will show, with a unique data set, why we believe management is exaggerating the performance of its recent acquisition, and why the acquisition is already failing miserably. When we asked another recent former employee their opinion on the transaction, the utterance was, "Dump it! Oh God! Horrible, Horrible, like Horrible. Even the product is Horrible."

With markets awash in excess liquidity, and nervous about escalating trade wars, we will illustrate why investors have irrationally bid the Company's share price well above its average analyst price target, on the false perception that it is a safe and conservative investment run by honest and ethical management, and immune from China. From our experience, shorting stocks when the valuation becomes so extreme is generally a favorable opportunity.

Some recent examples will illustrate:

In July, we introduced our readers to Penumbra (NYSE: PEN), a one-trick-pony surgical instrument company which, in our opinion, produces a low-tech and undifferentiated product in an increasingly competitive space. Even bullish sell-side analysts had an average price target 7% below its trading price. With our proprietary data from IQVIA, we illustrated why we believed Penumbra was losing market share, and would ultimate disappoint investors. Following Q2 earnings, its share price is down by as much as 16%

We recently explained to you why Mettler-Toledo (NYSE: MTD) was a highly compelling short at $820 with its share price 14% over the average analyst price target, and with sell-side analysts not warning about the magnitude of slow-down in key end markets. In addition, we showed evidence of concerning affairs in its China operation, and evidence suggesting aggressive accounting and financial strain. Following disappointing Q2 earnings, and signs of financial strains intensifying, Mettler's share price hit a low of $640, down 22%.

We've relentlessly preached about the stock promotion of iRobot (Nasdaq: IRBT), and how rapid product commoditization, tariffs, and distributor acquisitions would catch-up with the Company's ability to expand gross margins, and grow earnings. In particular, we illustrated that when iRobot was trading 13% above its average analyst price target, the risk/reward was highly unfavorable, and that its share price would catch-up with reality. Now after two anemic quarters, and a rapid contraction of gross margins, we were not surprised to see iRobot's share price crash, down 50% from our last warning in March.

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Legal Disclaimer

This communication is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy, sell, or sell short any security or other financial instrument or to buy any interests in any investment funds or other accounts. Spruce Point Capital Management LLC ("SPCM") has short positions in and may own put option interests on the reported Company and stands to realize gains in the event that the price of the stock decreases. SPCM and its clients, partners, affiliates will transact in securities of the company subsequent to publication. The sender has no obligation to update the information contained herein and may make investment decisions that are inconsistent with the views expressed in this communication. To the best of SPCM's knowledge, the information contained herein is accurate and reliable, but the information is presented "as is". The sender makes no representations or warranties as to the accuracy, completeness or timeliness of the information, text, graphics or other items contained in this communication. The sender expressly disclaims all liability for errors or omissions in, or the misuse or misinterpretation of, any information contained in this communication. Wherever used, the words “may”, “could”, “should”, “will”, “anticipate”, “intend”, “expect”, “plan”, “predict”, “believe”, and similar expressions identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. Forward-looking statements are based on information available at the time they are made, assumptions made by SPCM, and SPCM's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in forward-looking statements, historical results or current expectations. Past performance is no guarantee of future performance.

Analyst's Disclosure: I am/we are long SPY.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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