Yahoo Finance Short Seller Walloped by PowerSchool Deal Report, Stands Pat
(Bloomberg) -- Spruce Point Capital Management LLC is sticking by its bearish call on PowerSchool Holdings Inc. — even after deal speculation erased one of the worst stock drops in the company’s history.
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Shares of PowerSchool jumped by a record 15% Wednesday after the Wall Street Journal reported that Bain Capital was in talks to take the education technology company private. It was a blow to Spruce Point, the veteran hedge fund which issued a mid-April short report on the company, and a reversal of fortune for PowerSchool which had been in a downward spiral following the report.
“Bain is an accomplished investor but we question why it would want to buy PowerSchool given the significant risks and issues we highlight in our report, some of which appear to be coming to fruition,” Ben Axler, the founder and chief investment officer of Spruce Point said. “We remain short PWSC.”
PowerSchool didn’t respond to requests for comment.
While shares are still down about 19% this year, the stock is back around levels seen before Spruce Point’s bearish call.
It’s a reminder of the dangers of short selling, a practice where traders gain when a stock declines but can get burned — with the potential for infinite losses — if shares surge while they still have a contrarian position. It’s also out of the norm for Spruce Point, which has a track record of seeing many of its targets fall in the immediate aftermath of its short reports.
“They are one of the most prolific short sellers,” according to Breakout Point’s Ivan Cosovic, founder of the Düsseldorf, Germany-based data tracking firm.
Of course, stock moves following short reports are not directly indicative of a firm’s performance; short sellers don’t usually disclose when they enter or exit trades.
And for activist short sellers, like Spruce Point, lobbying for change can ultimately lead to positive outcomes for shares.
“We’re very focused on management and the board and the governance, and when we find areas of concern or some sort of history of failure or problems in the past, we think that may be a good indicator of future potential problems,” Spruce Point’s Axler said in an interview.
Here’s where some of Spruce Point’s past targets are trading today:
Boot Barn
Spruce Point released its latest short report Wednesday targeting Boot Barn Holdings Inc. Shares fell as much as 4.2% intraday before reversing to close up 0.8%.
In the report, Spruce Point called out the Western-wear retailer’s management while forecasting a 40% to 50% downside for the stock.
Boot Barn didn’t respond to requests seeking comment.
Zillow
Zillow Group Inc. is Spruce Point’s most successful short call year-to-date after the firm revealed its bearish wager in March. The stock has lost roughly a quarter of its value since then.
Read more: Zillow Drops as Short Seller Highlights Industry Legal Pressure
MSCI
Spruce Point’s January call on MSCI Inc. took more time to play out — shares initially dipped only slightly when the report was released, but have since extended losses. The index provider’s stock drop deepened in late April following disappointing earnings.
Read more: Spruce Point Shorts MSCI Alleging ‘Abusive’ Accounting
Super Micro Computer
Shares of AI-darling Super Micro Computer Inc. slumped more than 7% the day that Spruce Point released its short report. However, the stock has skyrocketed in the 15 months since then, riding the wave of interest in artificial intelligence linked companies. The company also got a lift from being added to the S&P 500 Index earlier this year.
Read more: Super Micro Computer Drops After Spruce Point Short Report
DoubleVerify
Shares of DoubleVerify Holdings Inc. have fallen about 35% since Spruce Point’s short report in May of last year. The stock dropped by a record 39% Wednesday after the software company cut its full-year forecast in its latest earnings report.
Read more: DoubleVerify Falls After Spruce Point Issues Short Call
Nuvei
Nuvei Corp. shares are down about 24% more than a year out from Spruce Point’s report.
Before the firm released its research on the global payments processor in April 2023, shares had rallied more than 66% but reversed most of those gains to end the year roughly 3% higher.
Read more: Nuvei Faces Short-Seller Report After Ryan Reynolds Stake
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