Happy New Year! We hope all of our readers are safe and ready for an exciting 2022 that expects to bring a plethora of short-selling opportunities to a structurally overvalued equity market. With the FED committed to tapering, and multiple interest rate increases expected for 2022, we foresee increased market volatility and greater discrimination in stock selection. The importance of “knowing what you own” and conducting enhanced due diligence on investment opportunities has never been greater.
Q4 2021 hedge fund letters, conferences and more
The Most Successful Calls In 2021: Oatly
We want to kick off the year with a high conviction idea that shares many parallels to one of our most successful calls in 2021: Oatly (Nasdaq: OTLY). Investors became enamored with Oatly’s prospects when it was endorsed by leading celebrities such as Oprah, and became the oat milk partner of choice by Starbucks. From afar, this seemingly legitimized Oatly, a company that never was really profitable or had a mainstream appeal. But having Starbucks as partner gave conviction for some analysts to model wildly optimistic sales growth projections, enhanced margins, and project lofty share price targets. However, there’s always a dark side to every bull market story. When a young company places undue reliance on a major customer, and fails to give adequate disclosures about the nature of the relationship, risks rise exponentially. No relationship is ever smooth, but when things turn sour it can be painful to the stock price. As became quite clear throughout 2021, we believe Oatly’s inability to produce reliable oat milk through multiple manufacturing challenges strained its relationship with Starbucks, and ultimately compounded its abysmal share price performance.
Tomorrow, we’ll expose another recent hot IPO that we believe has put undue reliance on a marquee customer to promote its business and financial potential to woo investors. However, beneath the glitz and glamor of a 100% consensus “Buy” rating from sell-side stock promoters, our deep forensic financial analysis will show strong evidence of increasing financial strain in the relationship with its marquee customer, while we believe the Company fails to adequately disclose the pressures.
Investors might be lulled by its charismatic CEO into thinking the future looks great and everything is fine. However, as our readers over the years will have come to expect, Spruce Point takes nothing at face value unless we’ve done a full background check on the executive. What we found about this CEO was his propensity to embellish and exaggerate; everything from revenue figures to his educational degree credentials. We’ll reveal not one, not two, not three, but four different educational degree claims made by the CEO! Which version is the truth? Well, that’s anyone’s guess…If we told you we thought the CEO were arrogant or cocky, he would probably tell you he’s heard these criticisms before, as he’s on record admitting as much.
We’ve also done a detailed check on the Company’s CFO and we’ll illustrate a rather striking connection in his background. He doesn’t mention a stint he had in an accounting role at a public company that has often come under scrutiny, and was once founded, promoted and controlled by a notorious corporate villain who ran one of his country’s largest frauds ever and went to prison. When a financial news reporter later looked for clues as to what could have foreshadowed the fraud, there were two irregularities noted. Ironically, these exact same two irregularities caught our attention when doing a detailed forensic review of the Company we’ll profile tomorrow.
The full report can be viewed at www.sprucepointcap.com and please follow us on Twitter @sprucepointcap for exclusive updates.
Article by Spruce Point Capital Management
