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We are forced to let this company go!

April 16, 2024
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Wiko Steyn
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Wiko Steyn

Core Fund Update 15

 

Only 2 weeks ago we were excited to introduce the latest stock in our Core Fund and today we regret to inform you that we had to sell our position earlier this week. DLocal (DLO) was a victim of a short seller attack and there were accusations of fraud. 

We described DLocal as a rare combination of rapid growth and profitability, and their numbers certainly back this statement. 60%+ Top line growth, GAAP profitability and EBIT margins exceeding 30%. These numbers are very impressive and their continued execution led us to invest in this company, but what if these numbers are actually too good to be true, or maybe even false? 

Whether these allegations are true or not is very hard to determine, as retail investors we are vulnerable to this kind of risk because we are reliant on the earnings reports companies post and we have to trust in regulatory forces that these financial statements hold true. But we have seen what happens if fraud is actually involved like in the case of the South African darling Steinhoff. 

Ironically Bank of America and Goldman Sachs set price targets of $30 and $43 respectively earlier this week. Proving that even these giant companies with almost unlimited resources can get it wrong or maybe there is actually no validity to these allegations and the company is simply firing on all cylinders.

Short sellers love to target payment companies as their accounting by nature is complex. Does complex financials == Fraud? Not necessarily, unfortunately, this issue won't be settled quickly and the company's reputation has taken a hit. 

DLocal has addressed the short report with a press release claiming "numerous inaccurate statements, groundless claims and speculation. Short seller reports are often designed to drive the stock price downwards to serve the short seller's interests to the detriment of the company's shareholders. Unfortunately, there are no consequences for these short seller companies if their claims prove false and they greatly benefit from the share price falling.

DLocal feels like a humbling example of single-stock risk for us all. Today's large drop in share price wasn't driven by a prescheduled earnings release or other known risk event. The short report just came out of left field in the middle of the day & then boom, half your position is gone. Ouch.

 

Portfolio Update Summary

After Selling DLocal, we are back on the hunt for a new company to add to our Core Fund. We are taking a small loss on this investment and the company might make a massive comeback but until all the allegations have been rebutted we don't want to be associated with any possible fraudulent accounting practices.

  • Sell $454.28 DLO at $18.08


 

Disclosure

This article is not financial advice and is based on the author's opinion. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk, and a financial product's past performance does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. The $20K in the Core Fund is not real money and only a demonstration of a typical portfolio. This is an actively managed portfolio, where we will buy and sell positions as we deem fit without any regard for taxation. Remember, all selling of stocks triggers a tax event in most countries and it is the investors personal responsibility to always remain tax compliant.

 


 


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