One of the worst performers on the S&P/ASX 200 index last month was the WiseTech Global Ltd (ASX: WTC) share price.
The logistics solutions company’s shares lost 25% of their value over the period, compared to a 0.4% decline by the index.
Why did the WiseTech share price crash lower in October?
Investors were heading to the exits in their droves last month after WiseTech was the subject of a scathing short seller report by Hong Kong-based J Capital.
J Capital made a series of allegations, including WiseTech overstating its profits, its organic growth, and the performance of its European business.
In respect to its profits, J Capital alleges that “overstated profit in the three years since WiseTech listed may be as high as $116 mln. That would be an overstatement of 178%.”
And although the company responded with a comprehensive rebuttal, as we have seen before with Corporate Travel Management Ltd (ASX: CTD) and Rural Funds Group (ASX: RFF), this wasn’t enough to keep some investors from panic-selling.
The company’s CEO, Richard White, hit back at J Capital.
He said: “We acknowledge the right to differing opinions, but we are deeply concerned about the extensive value destruction that can be wrought from short seller reports that potentially damage our shareholders large and small and the integrity of investment markets. All shareholders should be aware that unconscionable attempts to manipulate the market exist and may continue. We thank our shareholders for their support and patience while we correct these erroneous reports.”
The CEO then called on regulators to crack down on the practice.
He added: “Whilst we, and other Australian listed corporations, are subject to stringent external audit, validation and verification, no such standard applies to these types of actors. Many of these attacks may largely be beyond the reach of our market regulators and operate in ways that are clearly at odds with our system of laws, our market, culture and society. We support investigations by regulators of attempts by short sellers to target ASX companies and in prosecuting unconscionable conduct.”
Should you buy the dip?
Whilst I think that WiseTech Global is a quality company and could be worth considering at the levels, I intend to wait until the dust settles on this short seller attack.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.