Enviva (NYSE:EVA) stock closed down 13% today after Blue Orca Capital issued a detailed short report against the company. According to the activist investment firm, the alternative energy company is “flagrantly greenwashing its wood procurement.”
For the world’s largest wood pellet producer, this comes at a bad time. EVA stock has been steadily declining, shedding about 40% of its value over the past six months. Now, Blue Orca claims that Enviva is not at all the environmental, social and governance (ESG) champion that it bills itself to be. Perhaps worse than that, the firm also believes Enviva’s financials are in disarray.
Let’s take a look at the Blue Orca short report and what investors can expect.
What’s Happening With EVA Stock?
Closing down by double digits for the day despite a slight afternoon rally, EVA stock has seen no real growth in months. But if Blue Orca’s short report is any indication, it may be headed for even darker days. As the firm sees it, one of Enviva’s defining, investor-attracting traits is actually a “farce.”
Blue Orca uses some strong words in its case against EVA. For one, the firm says Enviva has misled investors into viewing it as a safe ESG play:
“We believe that Enviva is […] a product of deranged European climate subsidies which incentivize the destruction of American forests so that European power companies can check a bureaucratic box.”
Blue Orca goes on to compare Enviva’s story to a George Orwell novel. It states that, although “burning wood emits more CO2 per unit of heat generated than any major energy source (including coal), an arcane carbon accounting loophole subsidizes European power companies to replace coal with wood pellets derived from deforestation in the United States.”
The short seller attributes all of this to false activism on the part of Enviva, which it sees as colossal failure. But even more damning is the firm’s prediction that Enviva will be drained of money by next year due to its falling cash conversion and lack of profitability. The short seller also challenges the company’s claim that it is able to generate enough cash to “support its dividend” or any future growth initiatives.
The Bottom Line
The central thesis of the short report? Blue Orca feels that Enviva has failed to both meet proper ESG standards and remain profitable. The firm even goes so far as to say that “any legitimate ESG investor or allocator should be embarrassed to own this stock.” While those words may seem harsh, it’s difficult to ignore such a strong bearish case against a company that has been struggling for months.
When experts have ranked the best ESG stocks to buy, EVA stock is rarely among them. The recent short report offers investors some insight as to why that may be the case. In July 2022, Blue Orca issued a similarly bearish case against Miniso (NYSE:MNSO). Although the company denied the accusations, MNSO stock has been struggling since then. EVA stock will likely follow a similar trajectory.
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.
