Today, we’re witnessing an example of how a short report can impact a stock. Reportedly, activist short seller Scorpion Capital just published a report about Twist Bioscience (NASDAQ:TWST). You might be shocked to discover the price target that Scorpion has placed on TWST stock, along with the accusations in the short report.
California-based Twist Bioscience provides synthetic DNA-based products. This might sound intriguing to prospective investors. However, not everyone is convinced that Twist Bioscience is deploying synthetic biology in a way that will benefit all stakeholders.
Back in July, Twist Bioscience asserted that the company is working “to bring the Factory of the Future online in Oregon.” Scorpion Capital’s report, however, states that the factory is “deserted based on photographic and other evidence.” This, apparently, has led the people at Scorpion to believe the factory is “a ruse for improper capitalization.”
Furthermore, the report suggested that Twist’s synthetic biology development operations are a “swindle” and a “cash-burning inferno that is not a going concern.” So, how did today’s financial traders respond to these harsh words?
What’s Happening With TWST Stock?
The response was immediate and swift as TWST stock dropped 18% in early trading today. Moreover, by 10:30 a.m. Eastern, the trading volume was much higher than the daily average.
How much further could the shares fall? It’s hard to say, but Scorpion Capital went so far as to issue a price target of zero.
Along with doubts about the utility of Twist Bioscience’s factory, Scorpion cited allegedly “suspicious transactions with offshore Chinese entities” as well as “reported gross margins of 45% are simply implausible.” The short seller believes that Twist’s actual gross margins are negative.
Does Twist Bioscience have, as a selection of the report’s headings puts it “financials so phony” that they “may be criminal”? Each investor should consider the known facts and form their own conclusion. In the meantime, however, the winning trade appears to be on the short side of TWST stock.
On the date of publication, David Moadel 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.