Citron, a well-known Wall Street short, is back in the spotlight after a tweet suggesting Lizi, China’s first online audio stock, is undervalued. Its founder, Andrew Left, quit short research after being attacked by retail investors for calling bulls “idiots” during a rally in the “retail huddle” game.
In a tweet, Citron said, “Lychee, China’s leading audio streaming platform, is now valued at just $400 million. With an enterprise value of 1.4 times sales compared with 17.2 times for peer Yala, Lychee has the opportunity to benefit from the anti-monopoly trend among China’s tech giants. Meanwhile, Lychee is worth $7 per MAU (monthly active user), while Yala’s MAU is worth $221.”
Shares of Lychee, which is listed on the Nasdaq Stock Exchange, rose 29.5% to $631 million after the tweet. Shares of Arak also ended the day up 15.29 per cent.
Once against the tiger, Evergrande famous big short why to cheer for the general stock? What happened to the companies Citron survived?
Has done more California furniture company, Buffett took over
Unlike James Chanos, the big short who exposed the Enron scandal a generation ago, Andrew is one of the first “representatives of public opinion” to use blogs as a “beat,” without the need for mainstream media to act as an “information broker.” He can always pick up on changes in market sentiment and improve the success rate. He has used the “hatred of high drug prices” to drive $20 billion off the market value of Canadian pharmaceutical company Valeant, and he has also used the information gap between the US and China to target Chinese listed companies such as Qihoo and Evergrande.
But Mr. Andrew, the ‘big short’ who built his reputation shorting individual stocks, isn’t focused solely on short strategy.
In a letter to investors in early 2020, his hedge fund Citron Capital, in addition to shorting, made a number of bets in 2019, including generic drug company Bofcom, furniture brand RH and social app Snap, according to the report.
In the case of California furniture company RH, Citron Research on January 24, 2019 tweeted publicly in support of RH, calling it “retail’s most compelling story” and giving it a $250 price target. At the time, RH’s stock hovered around $130 for a long time, almost half its target price.
The California-based furniture company sells a wide range of furniture products through retail stores, brochures or a website. The company focuses on the high-end market to open large luxury stores, operating performance is growing steadily. But the company remains a target of many short sellers, dragged down by a broader decline in the high-end real estate market. Short-sellers also argue that RH, caught in the crossfire of e-commerce, is outdated.
Citron Research publicly endorsed RH in a tweet on Jan. 24, 2019, calling it “retail’s most compelling story” and issuing a $250 price target.
News of Buffett’s position in RH sent the stock price soaring, hitting $250 in February 2020 and now trading near $475.
Citron, a big short, stands by RH’s business model. As brick-and-mortar retail renters shrink, RH has become the only big tenant in some high-profile locations, Citron noted in a long report. In some cases, RH has been able to capture lots for 50 percent of the price paid by former tenants and become a seamlessly integrated corporate ecosystem by operating in a way similar to Apple’s physical stores. In its 2020 annual letter, Citron likened RH to “the Tiffany of jewelry,” saying that, like LVMH’s acquisition of Tiffany, the luxury brand itself is at a premium, despite the latter’s low growth, fierce competition and near-rejection by millennials. “There is also an untapped international market.” Citron estimates that if RH is priced at LVMH’s Tiffany price, it has a price target of $350.
But neither Citron’s first long report nor the increase in target price in its annual letter has significantly boosted individual stocks. Until the news of Buffett’s position in RH, stock prices rose. On Nov. 15, 2019, Buffett’s Berkshire Hathaway’s position report showed that it had bought 1.21 million RH shares in the third quarter, or about 6.5% of the premium furniture brand. The stock, which topped $250 in February 2020, is now near $475, exceeding Citron’s price target. Citron Capital did not disclose the timing of the RH position, and the size of the position.
Andrew was also publicly long Amazon during the U.S. epidemic in 2020. In an interview with the media, he said that starting at the end of March 2020, he had a “very large long position” in Amazon stock. “The logic is simple. If we stay at home, Amazon will be a big winner. If things get back to normal, Amazon will still be a big winner.” Amazon is one of the leading U.S. stocks as social segregation restrictions boost e-commerce sales in 2020. According to the annual letter, the annual citron capital total return in 2020 is 202%, net rate of return 155%.
“Pull up the shipment cut leek”? Used to wave the flag for Luckin
But Citron’s strategy does not always be able to bet on, sometimes accompanied by “high shipment cut leek” controversy.
On February 9 this year, Citron Research has publicly sang long short check SPAC company NPA, saying that the company “the most eye-catching collection of space /5G/ESG and other elements in the market. Since all SPACs are speculative, why not pick a racetrack story with a potential $1 trillion market?” . Citron also has a $50 price target on NPA, saying it will issue a specific long report.
Shares of NPA jumped 20 percent on the day of the tweet, hitting as high as $22.50. But a month later, the stock had plunged to around $12 before the tweet, and never recovered. Citron Research has never published a bullish report on NPA in a Twitter post. As a result, after Citron Research endorsed Litchi, some users still left messages urging them, “Where is the promised NPA report?”
More familiar to Chinese investors is the controversy over Citron’s support of Luckin Coffee on the eve of the company’s accounting fraud Revelations.
On Jan. 31, 2020, Muddy Waters Research, another short seller, released an anonymous report that questioned Luckin’s alleged financial fraud, which had been listed for just over a year. The report, based on 11, 260 hours of store videos, questioned Luckin’s inflated sales per store per day by 69 percent and 88 percent in Q3 and Q4, respectively. Although the report became a “Squib” in the market at the time, it became the key to the disclosure of the fraud by Luckin executives and the delisting of the company.
But on the same day that Muddy Waters released its report, Citron Research declared itself bullish on Luckin and took to social media to challenge Muddy Waters. Citron said Luckin had a “strong business” in China and that the anonymous reports were inaccurate. Citron added that it could confirm Luckin’s financial position through App downloads, other data and “conversations with competitors.”
‘Young retail investors’ behind long-only strategies
When ultra loose monetary policy increases bear risk, a large number of individual investors trade in the convenience of zero commission below, turn a head to hunt and kill the hunter originally during, Citron “change face”, calm down temporarily the anger of many, also be with retreat for the advantage and for.
“The risk-reward for short sellers is not worth it over this time period.” After losing out to the retail crowd at Game Station, Andrew told the press that today’s young people don’t experience the same worryingly marginalized negativity: “They just want to go to Robinhood and buy a stock and hopefully it’ll go to the moon. They limited their research to Reddit posts via emojis and banned anyone from selling shares.”
“It’s the zeitgeist that young people want to buy stocks. They don’t want to short stocks, so I’m going to help them buy stocks.” On January 29, 2021, Andrew publicly stated that he would stop short research and would focus on long opportunities.
Data show that after the game station experienced a sharp rise and fall, the United States retail funds are still entering the market, to the long strategy to provide the soil.
David Kostin, chief U.S. equity strategist at Goldman Sachs, predicted in a research note that cash-rich U.S. households will continue to fuel the retail trading boom in the future. Households have accumulated more than $1.5tn in excess savings, and that figure could rise to $2.4tn by mid-2021, according to the study.
Eligible Americans will also receive a one-time cash check of $1,400 as the $1.9 trillion U.S. relief package hits the ground running. According to a survey by Deutsche Bank, respondents plan to put 37 percent of any stimulus into equities. If the survey is accurate, it could mean $170bn in future flows into US stocks.
With more ammunition in hand, the convenience of online brokerages has also lowered barriers for retail investors to enter the stock market. Zero-commission Internet brokerage Robinhood, which was criticised for banning retail investors from buying Game Station, has seen more downloads in the wake of the scandal, with more than 2.1m downloads in February, up 55 per cent from a year earlier. Undeterred by the risks of boom and bust, young Americans seem to be gearing up to replenish their faith.
But a change in the face of profit – driven capital can also happen in a flash. In 2016, when Citron first sang long RH, the stock price was $30. But a year later, although the stock price rose 150%, Andrew said he was dissatisfied with the new capital structure and did not want to hold any more. “We also need to know when to sell”.