Short sellers are gaining attention lately, often causing stocks to drop after they release reports about their positions. While some reports might contain valid concerns leading to a stock price decline, others may lack evidence. Short sellers are careful with their language to avoid legal issues.
Ultimately, the goal of these reports is to trigger a stock sell-off so that short sellers can profit from the drop, leaving other investors to face losses. However, the effects of these reports can be short-lived. Here are three technology stocks that bounced back after being targeted by short sellers.
Roblox: Allegations of Inflated User Metrics
On October 8, 2024, Hindenburg Research accused Roblox Inc. RBLX of exaggerating its daily active users (DAUs) to boost its stock price. They noted that insiders sold $1.7 billion worth of stock since going public, including $150 million from CEO David Baszucki.
Misleading Metrics
Hindenburg claims that Roblox inflated its DAUs by 25% to 42%. They argue that DAUs can include multiple counts from single users with multiple accounts, misleading investors about actual engagement. Former employees suggest real user numbers might be 30% lower than reported.
The report also raised concerns about safety on the platform, claiming it allows child predators to operate. This aimed to create further panic among investors.
Roblox’s Response and Recovery
Initially, RBLX shares fell from $41.60 to $36.09 after the report but quickly rebounded to close at $40.51 by the end of the day. Roblox publicly disputed the allegations, and the negative impact was minimal and short-lived.
Block: Allegations of Criminal Use of CashApp
On March 23, 2023, Hindenburg targeted Block Inc. SQ, suggesting that its Cash App was being used for criminal activities. Hindenburg alleged inflated user metrics to support an insider sell-off exceeding $1 billion.
Employee Interviews and Allegations
The firm claimed to interview many former employees, suggesting Cash App serves the criminal “underbanked” population. They argued that user metrics were inflated and cited the ease of opening multiple accounts.
Market Reaction
Block’s stock fell 14.82% after the report, dropping from $72.61 to close at $61.88. However, it recovered to $70.53 within five days. Over time, the stock fluctuated, hitting a low of $38.85 and a high of $86.17. Currently, it’s trading around $70.
Super Micro Computer: Accounting Claims and Filing Delay
On August 27, 2024, Hindenburg issued a report claiming accounting irregularities at Super Micro Computer Inc. SMCI. They accused the company of inflating financial metrics, referencing past SEC violations.
10-K Filing Delay
The report coincided with Super Micro delaying its 10-K filing for an internal review, leading to a further 19% drop in shares. Although the company anticipated no significant changes, the stock had previously fallen to $39.52 but has since recovered to $47.80.
This article “3 Stocks Targeted by Short Sellers Making Strong Recoveries” first appeared on MarketBeat.
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