Shares of Heska Corp (NASDAQ: HSKA) have lost nearly 20% since late August, but Spruce Point Capital Management says the stock could crash another 60% from here as its current premium valuation is “nonsensical”.
Heska’s Element AIM will disappoint
In its report on Monday, Spruce Point said financial disclosures from Heska were unreliable, citing example of a massive disposal of mercury that the company concealed from its investors.
Heska has been fascinating investors on promises that it will soon launch a range of new products, particularly a new faecal/urine analyzer – Element AIM. The investment manager, however, warned that market research suggests the new product will “fail to meet investor expectations”.
HSKA lost about 5% on the report this morning, but the stock is still up more than 50% year-to-date. The pet healthcare firm is set to report its quarterly results next week.
Heska’s acquisition spree created a false perception
From 2017 to 2019 was financially a challenging period for Heska Corp as its margin contracted significantly on negative organic growth.
The Colorado-based company then started an “acquisition spree” to paint a picture that it was adding new products to its portfolio. But in reality, Spruce Point denounced, Heska was only creating a false perception as its “recent acquisitions reveal a pattern of acquiring low-quality assets.”
Other reasons for the dovish stance included numerous governance failures. The report read:
Heska’s underwriter and bullish equity promoter, Piper Sandler, employs the children of Heska Chief Executive Officer Kevin Wilson – that should make the shares un-investable for funds that place even the slightest weight on ESG considerations.