Muddy Waters Research

Muddy Waters Research are a US based publisher of reports that question the accuracy of some companies' accounts.

Question is a quite mild description, whilst staying on the right side of the law they make it perfectly clear to the reader that they are calling something a lie, a deliberate attempt to mislead or just outright fraud.

They are also a user of this information for their own benefit and many of their articles have a title that starts with Muddy Waters is Short [company name].

It appears that when such a report is compiled MW take a short position in that company's shares and then release the report hopefully from MW's perspective causing a large share price drop.

This is a quite tricky thing to do lawfully as it can be close to market manipulation, so far the regulators have not seen fit to intervene as the MW's documents contain facts or reasonable interpretations of facts.

This is all very interesting but is this information useful to a UK Retail Investor, once it is available to be read by a private investor the market will have already read it and adjusted the relevant share price downwards.

My experience so far is that there a drop in share price for a day, two or three rather than a drop before the market opens and a recovery on the same day.

Understand the company, the market sector and the financial performance of the companies that you are buying.

Do not buy companies just because a share price chart suggests that the price will continue to rise.

The MW reports seem to have had a significant affect because they are either right or credible and the companies that they report on are enjoying a high share price because they have a high price and "great opportunities in the future" so investors are buying them because of the this not last years results.

First Report On A Company

8 Apr 2020 - eHealth Inc (EHTH Nasdaq)    MW Report  

3 Months Before Announcement Range: 94USD - 146USD
Immediate Low: 102USD
5 Day After Announcement Range: 103USD - 125USD
3 Months After Announcement Range: 106USD
Price @ 27 Jul 2020: 79USD
eHealth are primarily an insurance broker selling medical insurance in the USA.

MW seem to suggest that the eHealth has changed their business model from targeting higher value, long term customers for one chasing high volume lower value short term customers and assuming in their accounts that these new customers will stay for the same length of time as previous customers.

Imagine a customer who is likely to move insurer every year but the company is booking commissions for two to three years!

Interestingly eHealth does not seem to have taken any notice (20 Apr 2020).

I am looking into this further but it requires an indepth understanding of US Health Care Insurance.

On the 23rd July 2020 eHealth released a trading update for Q2 that headlined revenue up by 35% to $88m, loss down to $3.4m from $5.8m and EBIDTA up to $1.7m from $0.8m. The result was a drop in the share price from $114 to $76 which could be hard to understand.

The most likely reason is that Net cash used in operating activities rose to $21.3m from $11.5m and they expect that to be around $90m for the full year.

It seems to me that many are now coming to the view that yes MW were right.

17 Dec 2019 - NMC Health (NMC)    MW Report   Commentary  

3 Months Before Announcement Range: 1,800p - 2,800p
Immediate Low: 1200p
5 Day After Announcement Range: 1,600p - 1,800p
3 Months After Announcement Range: 677p - Suspended at 1000p
Price @ 8 Jul 2020: In Administration
NMC are a health care business initially based in and around the UAE but are now expanding worldwide.

After only a few days the share price was already back to the level of mid Aug 2019 which was a short term trough. The group has been expanding rapidly so this price is also a 2 and a half year low.

Initially the report partially stuck but the market didn't appear fully convinced by the specific questions raised.

Then the more general point about the accuracy of the accounts started to be realised, it emerged that the big three shareholders had used their shareholdings as security for loans unknown to the HMC board and then confusion reigned as these shares started being sold and it was unclear who owned what.

During this period there were major sales of shares at around 1,200p when the open market price was around 1,500p.

Trading in the shares was suspended on the 23rd of Feb 2019 to allow for clarification.

NMC entered administration on April 5th, currently it appears that attempts are being made to refinance the company with a possibility of shares trading again.

7 Aug 2019 - Burford Capital (BUR)   MW Report   Commentary  

3 Months Before Announcement Range: 1,500p - 1,600p
Immediate Low: 600p
5 Day After Announcement Range: 700p - 800p
3 Months After Announcement Range: 600p - 950p
Price @ 8 Jul 2020: 549

Burford Capital finances legal actions, including one that could result in a billion dollar settlement against the Argentine Government for the nationalisation of YPF, the state run oil company.

Burford have sold a share of about 40% of the expected settlement fee for $140 million.

Their main revenue sources are part of the settlement when they win cases and selling parts of the possible settlement in ongoing cases as they move closer to a possible win.

After the report the share price settled down at around half of the pre analyse price for a while but appears to be in a slow decline as there has been no good news to dispel the doubts.

The MW warning seems to have lost its power, the price hasn't recovered to the pre warning level but it does appear that the company is being priced in sync with the market in general.

8 Feb 2018 - IQE (IQE) MW Report   Commentary  

3 Months Before Announcement Range: 100p - 170p
Immediate Low: 100p
5 Day After Announcement Range: 100p - 105p
3 Months After Announcement Range: 108p - 120p
Price @ 8 Jul 2020: 50.16p
IQE manufacture wafers which are basis of chips used in the telecoms and wireless industries. The big issue for Muddy Waters is that IQE and Cardiff University formed a business called Compound Semiconductor Centre CSC and IQE benefited by the accounting of transactions between the University and CSC.

The share price has been on a fairly consistent downward trend since the report was published consistent with a gradual loss of enthusiasm for the company rather than a sudden loss of confidence.

The MW analysis seemed to coincide with a general share price drop, possibly as a result of a report from ShadowFall who according to their website specialise in ...exposing situations where market value exceeds intrinsic value.

Muddy Waters doesn't appear to published a follow up to their report in April 2018.