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Radiant Logistics (RLGT - Free Report) has been the Bull of the Day two times over the past few months, but a certain short seller decided to tweak their approach and shares of the stock were hit last week.  Let’s take a look at the hit piece, some other recent calls from the short seller and then look at the macro environment that is supporting RLGT in today’s Bull of the Day.

Third Time Bull

The first time RLGT was the bull of the day was back in April, you can review that write up (https://www.zacks.com/commentary/109517/bull-of-the-day-radiant-logistics-rlgt) along with the second appearance (https://www.zacks.com/commentary/116500/bull-of-the-day-radiant-logistics-rlgt) here.  Today marks the third time since April that the stock has been bestowed the honor of being the Bull of the Day.  I cannot recall another stock being mentioned as much in a such a short period of time… it has to be some kind of record!

Description

Radiant Logistics, Inc. operates as a third-party logistics company, providing multi-modal transportation and logistics services.

Normally

When I normally write the Bull of the day, I focus on why the stock is a Zacks Rank #1 (Strong Buy).  I talk to the recent earnings history and the estimate moves (which are the foundation of the Zacks Rank).  There is generally a section on the valuation as well, but that won’t be in this write up today. Instead I am going to poke some holes in a report that caused this stock to tumble.  If you want some background in the earnings history and estimates, please click the links above for the previous Bull of the Day articles.

I should also mention that I wrote this article (https://www.zacks.com/commentary/117124/shorts-attack-nvda-tsla-and-rlgt) on the day of the short seller attack.  It clearly was a case of good timing as the NVDA and TSLA bear calls really spooked the market.

Follow Brian Bolan on Twitter: @BBolan1

Short Seller

Spruce Point Capital Management released a report that had an awkward title, to say the least.  “A Critical Forensic Look At Radiant Logistics Strategy, Management, And Financial Accounting Strain Suggests 30-50% Downside Risk” – and boy was that a mouthful. By the third word, I am already wondering what is going on.  A critical look alone is good enough, but a critical forensic look is adding in the buzz words for effect.  The next red flag in the headline is “Financial Accounting Strain” – which is a brand new one for me.  All accounting is financial related, so again the author is just trying to make it seem more complicated than it really is.

Before I go into the report, I need to tell you why a report like this carries less weight because of where it is published.  Seeking Alpha shares the ad revenue from the pieces the authors write, so sensationalism is the backbone of the business model there. You write a hit piece with a stupendous headline designed to get more views and you will get a bigger reward.  So that has to factor into how you look at anything from that site.  If the merits of the piece alone are important enough to share (or sell), then this sort of thing would be free for all to see a Spruce Point’s website….which it is…but that should be the main source for it.

Missing the Mark

Once at the Spruce Point website you will see their last hit piece was on Wix.com and that stock is up 143% over the last year so that would be classified as a swing and a miss.  The another hit piece on Burlington Store in November promised 20-40% downside risk… alas, the stock has just moved higher by 35% since that time frame burying the shorts.  The track record at Spruce Point, the delivery (for $) and the title have all really shown that this hit piece is not on par with ones that I would take seriously… and I haven’t even read it yet.

Spruce Point suggests that a reverse merger is a questionable way to come to market.  That is to say Radiant bought a shell company that was already public but not functioning as a business as a way of avoiding the traditional investment bank route.  This presents challenges of getting research coverage, but they have overcome that issue.

The next item is GAAP and Non-GAAP.  It is well understood throughout Wall Street that all companies publish both sets of numbers, so crying wolf over this issue is really just a scare tactic.

As I walk through this report, I am seeing issue after issue that are really non-issues.  There is a flipside to nearly off of this… and then there is the events of 2004 and a completely different company that are discussed.

Scrolling down, I see the rest of the report coming in rather weak.  Roll-ups of fragmented industries work… as small as RLGT is, the deals are even smaller so they generally are not the type that can be a life ending land mine.  The report leaves out the idea of what the macro picture looks like for RLGT, which is pretty darn good.

Summary

Hit pieces like this are intended to scare you into selling your shares, which pushes the price lower.  Often times, the producer of such a report is already short the stock, so benefit from your sales. To attract your action on the stock, a wild headline of impending doom tends to work better on the short side than a discussion about the macro environment that is pushing earnings estimates higher.

All I can say for this stock is that Spruce Capital has probably already covered their short and has moved on to another stock hoping to shake more weak hands of the stock that is probably slated for excellent growth in the future.

 

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