FinTech Company Nuvei Is Targeted by Short Seller Spruce Point Management

Short-interest data can be a powerful research tool. If a stock has a high level of short interest, there is often significant risk to the downside.

In this report, we are going to take a look at the short interest data on Canadian payments firm Nuvei Corp (NVEI:US, NVEI:CN), which is listed on both the Toronto Stock Exchange and the NASDAQ. It has recently been targeted by short seller Spruce Point Management, who published a scathing report on the company and said that the stock has 40-60% downside risk.

The Spruce Point Report on Nuvei

Before we look at the short interest data here, let’s take a look at what Spruce Point Management said in relation to Nuvei.

In its report, the short seller says that:

● Nuvei has covered up business failures, lack of organic growth, and a web of relationships with individuals connected to major Ponzi Schemes and alleged fraudulent activities.

● While Nuvei is reporting financial success, growing margins, and improving cash flows after years of operating in the red, it is actually under pressure and declining organically in North America.

● Nuvei’s financial disclosures are weak. Spruce Point believes results are being temporarily enhanced from concentrated exposure to high-risk gaming and e-commerce.

● Nuvei CEO Phil Fayer previously ran a company called PaySystems, which collapsed, leaving aggrieved merchant customers across North America without their money, and multiple claims of fraud by the CEO.

● Nuvei’s EVP of Partnerships was recently referenced in a $100 million fraud and disappeared from the website, along with the Senior Legal Counsel.

● It believes Nuvei does business with the adult film industry, which could make its stock ownership unpalatable to ESG-focused funds.

Its conclusion is that Nuvei should trade at a discount to its FinTech peers instead of trading at a premium and that the best of the company’s share price expansion is behind it.

Short Interest Analysis

Now often, companies that are the focus of short seller reports have a high level of short interest. Usually, a number of hedge funds have spotted the risks and have taken short positions.

A good example is C3.ai. It was recently targeted by Kerrisdale Capital Management. Short interest data indicated that plenty of other firms were shorting the stock though.

What's interesting here, however, is that short interest is actually quite low. At present, just 3.3 million NVEI shares are on loan, representing just 5.2% of the free float. Meanwhile, the utilization rate, which measures demand from short sellers, is just 3.6%. These figures indicate that Nuvei has not been attracting a lot of attention from the short sellers recently.

Now, this doesn’t mean that Spruce Point Management is wrong in its assessment of Nuvei. Its research, and stock price forecast, could turn out to be on the money.

However, we think that there are some insights to be gained from the fact that there’s not much interest in the stock from the wider short-selling community at present. If the company is as suspect as Spruce Point says it is, we would expect to see a number of institutions betting against the stock.