Short Seller’s Bombshell Report Rattles Grifols: Stock Chart Points To Potential Further Decline – Grifols (NASDAQ:GRFS), iShares Inc iShares MSCI Spain ETF (ARCA:EWP)

Grifols S.A., a Barcelona-based pharmaceutical company, experienced a significant drop in its shares by 24% on Tuesday. This decline came as a result of a bombshell short report released by Gotham City Research, accusing Grifols of serious accounting irregularities and questioning its stock value.

Gotham City Research, known for its forensic financial analysis, had been closely examining Grifols SA’s operations since last spring. Over the course of nine months, the firm conducted an in-depth analysis of the company’s financials and uncovered what they described as a troublesome “pattern of behavior.”

The report from Gotham City Research stated, “We believe shares are uninvestable, likely zero,” asserting that Grifols’ shares may have no value. This revelation cast a shadow over the wider Spanish stock market, as Grifols significantly underperformed compared to its European peers during the session.

The iShares MSCI Spain ETF also saw a decline of 1.9% in response to the Grifols debacle. Investors grappled with the potential implications of the short report, triggering a significant sell-off in Grifols’ shares.

The stock’s downturn on Tuesday marked a significant deviation from its previous upward trajectory since mid-October 2022. Grifols’ shares dropped to a low not seen since April 2023. Previous dips to similar levels have typically indicated a deeply oversold condition on the Relative Strength Index (RSI), but the RSI has yet to signal such a state in this instance. Moving forward, investors will closely monitor the critical support level of $6.50.

Gotham City Research’s allegations against Grifols include inflating its EBITDA, manipulating debt levels, and engaging in tunneling transactions. They claim that Grifols, along with related family entities like Scranton Enterprises NV, has been involved in undisclosed loans and share pledges, which have created a misleadingly robust picture of the company’s leverage.

According to Gotham City Research, Grifols understates its debt burden, suggesting that the company’s actual debt could be closer to EUR 8.9 billion, significantly higher than the reported EUR 8 billion. They estimate that Grifols’ leverage may be much higher than the reported 6x, potentially reaching alarming levels between 10x to 13x. If these allegations are true, Grifols could face significantly higher financing costs, potentially putting the company in an unsustainable financial position.

Despite 20 buy ratings from analysts, Gotham City Research paints a dire picture of a company that has seen declining EBITDA margins for the past 11 years, even as its net debt has quadrupled since 2012. They draw parallels with NMC Health plc, a company that went bankrupt due to accounting scandals after a debt-fueled acquisition spree.

The report concludes that Grifols’ shares may be uninvestable and potentially worthless. It warns that if Grifols were to pay interest rates that reflect its actual level of leverage, its cash flows would be insufficient to cover the debt, hinting at a possibility of insolvency or severe dilution of equity.

Benzinga reached out to Grifols for further commentary on these allegations. The future of Grifols remains uncertain as investors await more information and clarity regarding the company’s financial situation.

Image: Shutterstock

Leave a Reply

Your email address will not be published. Required fields are marked *