GSX Techedu Continues Under Short-Selling Pressure in New York
What’s new: Short seller Citron Research continued to attack China’s New York Stock Exchange-listed GSX Techedu, calling the online after-school tutoring service provider “a fraud” and pushing the stock down nearly 10% Monday.
Citron Research, which accused GSX this spring of overstating its revenue by as much as 70% and shorted the shares, tweeted Friday that GSX is the only large cap stock in 20 years that reported expanding revenue more than 350% in a year and posted profits during the growth. The short seller also said it has confidence in auditors and regulators to expose it as fraud.
In short selling, investors expecting a stock to fall sell borrowed shares, betting that they can replace them by purchasing the stock at a significantly lower price and pocket the difference. Enterprises like Citron conduct research on companies that may be overvalued, sell the stocks short and publicize their findings, expecting to drive down the shares’ value.
The stock closed Monday at $96.56, down from $131.27 Thursday but still up more than 300% this year.
The background: Accounting scandal accusations that proved to be true this year involving U.S.-listed Chinese companies include GSX rival TAL Education Group and Starbucks challenger Luckin Coffee Inc. The incidents prompted lawmakers and regulators to threaten delisting of Chinese companies that fail to meet American auditing requirements from U.S. exchanges.
GSX has consistently denied the allegations of financial reporting fraud. The company reported staggering growth in both net revenue and net profit in the first quarter of 2020 as the coronavirus pandemic increased demand for remote learning.
In its tweet, Citron cited Wirecard as an example showing that companies would find it difficult to maintain fraudulent financials. The German payment giant filed for insolvency in June after acknowledging that 1.9 billion euros ($2.2 billion) missing from its accounts did not exist. Before that fraud was exposed, short seller Muddy Waters was blowing the whistle on Wirecard since January 2019.
Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full Caixin article in Chinese, click here.
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