Today, a new short report is rocking Tecnoglass (NASDAQ:TGLS), a glass and aluminum company based out of Colombia. Hindenburg Research, a short selling research firm, released a scathing short report on Tecnoglass this morning. In response, shares of TGLS stock have plunged over 40%.
This is Hindenburg’s first short report in four months. But it’s clear the effect that the firm’s reports can have on a stock. The last report released in June detailed how DraftKings (NASDAQ:DKNG) is involved in black market operations. As a result, shares of DKNG stock have fallen 30% since the report.
Hindenburg has conducted a months-long investigation into Tecnoglass and discovered “serious red flags” regarding management, undisclosed related party transactions and company financials.
So, what are the details of this report? And how might it affect TGLS stock going forward? Let’s take a look at the specifics.
Hindenburg Goes Short on Tecnoglass, Citing Shady Backstory
Tecnoglass engages in the design, manufacturing and distribution of glass products to residential and commercial buildings. Two brothers, Jose and Christian Daes, founded the Colombia-based company. Jose is the CEO of Tecnoglass, while Christian is the COO.
However, it seems as if these two brothers have a shady background. In 1996, U.S. prosecutors filed charges against the two brothers, alleging that the brothers served as “managers and operators” of the Cali cartel. The charges claimed that the brothers helped smuggle weapons and moved over 200 tons of cocaine. Shortly after, warrants were issued for Jose’s arrest, and he was declared a fugitive.
In a twist of events, the charges against the two were eventually dismissed in a sealed court case. This led the media to speculate that the sealing may have occurred to protect individuals who had cooperated in the prosecution of other defendants. As of this quarter, the two brothers collectively own ~55% of Tecnoglass.
Murky Transactions, Revenue Numbers Send TGLS Stock Tumbling
Furthermore, Tecnoglass made its public debut in 2013 via SPAC (special purpose acquisition company). The glass-maker cycled through three auditors that year, who flagged weaknesses relating to the “identification and reconciliation of related party transactions.”
Additionally, from 2013 to 2016, Tecnoglass’s largest customer was a company named GM&P. Tecnoglass failed to disclose that the CFO of GM&P is a cousin to Jose and Christian Daes. GM&P was eventually acquired by Tecnoglass in 2017, and again, no disclosures were released during the process detailing familial links.
From 2015 to 2021, export records show that Tecnoglass exported products to Glass Studio Group, which has ties to Jose and Christian Dae’s nephews. Again, the company did not disclose related party information.
Finally, Hindenburg alleges that Tecnoglass is significantly overstating its revenue. The company’s days sales outstanding (DSO) is roughly 100 days, which is nearly double the rate of industry peers. DSO is a measure of the time it takes for a company to collect payment after a transaction.
Hindenburg claims that “High, persistent, uncollectible receivables balances can often be a sign of fake revenue.” Given the two brother’s background, Hindenburg doubts the company’s revenue figures and urged its current auditor to conduct a further review.
However, shares of TGLS stock are still up 195% year-to-date (YTD), despite the recent selloff. Furthermore, Tecnoglass’s team has not yet released an official response. Investors should continue watching to see how this unfolds for TGLS stock.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
