Digital World Acquisition’s (NASDAQ:DWAC) problems just keep accumulating, as DWAC stock has now attracted the unwelcome attention of a noted short seller. Earlier today, Kerrisdale Capital tweeted that it had taken a short position in DWAC. Alongside this announcement, the firm released a 27-page short report, detailing why it was betting against Donald Trump’s blank-check partner.
The Kerrisdale report weighed on DWAC stock today, ultimately dragging shares down 5.9%. So what else do you need to know?
Let’s take a closer look at what the short report means for DWAC stock — and why investors should take note.
Why It Matters for DWAC Stock
Kerrisdale Capital’s short reports have sent unstable stocks down before. In October 2021, the firm published a report that sent Camber Energy (NYSEMKT:CEI) plunging. The recent report on DWAC stock is even more damming. As InvestorPlace Assistant News Writer Eddie Pan reported, it highlights several key elements of the company that should worry investors. Kerrisdale’s disclosure that it values DWAC, which currently trades above $45, at $10 per share, is troubling enough. But the hedge fund also states that it doesn’t think the merger with the Trump Media & Technology Group (TMTG) will even close.
We are short $DWAC. Report avail at https://t.co/mIscXnnEmd. We believe $DWAC will never secure regulatory approval to close its proposed merger with Trump Media & Tech Group. (1/9)
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) April 20, 2022
That’s just the tip of the iceberg. The fund goes on to allege that DWAC is a prime target for a U.S. Securities and Exchange Commission (SEC) investigation, something with which the company is quite familiar. Kerrisdale also takes fault with the fact Digital World has yet to file an S-4 with the SEC.
At the time of the merger announcement, TMTG was a bogus company, which combined with the ongoing SEC investigation makes the filing of an acceptable S-4 prohibitive. There’s a reason why 6 months after announcing the deal, $DWAC still has not filed even an initial S-4 (5/9)
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) April 20, 2022
The Kerrisdale short report follows a rush of bad news for Digital World and Truth Social. Investors have already reacted poorly to reports that Truth Social downloads have plunged by more than 93% since the app launched in February 2022. Since then, two of the company’s top executives have resigned. And adding to that, Elon Musk’s attempts to acquire Twitter have helped fuel the bear case against DWAC stock.
What Comes Next
The Kerrisdale Capital short report presents a compelling case for why investors should avoid DWAC stock. Investors appeared to agree today, selling off shares.
Where things go from here, and whether DWAC really will plunge to $10, remains to be seen. However, this is a story investors will be watching unfold no matter what.
On the date of publication, Samuel O’Brient did not hold (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.
