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  • Writer's pictureCrystal Waters Capital

Short Seller Short on Facts

Updated: Aug 12, 2021

Update re. Prescience Point Capital Report

Short-seller report makes claims of revenue inflation

Last week, Prescience Point Capital published a report on Enphase that

laid out several dramatic claims of accounting fraud and insider

malpractice of their fiduciary duty.  Specifically, the report claims that

over $200 million, or 40% of Enphase’s reported FY’19 revenue, is

fabricated as are many of the cost reductions that have led to significant

margin expansion. As several insiders, including CFO Eric Branderiz,

sold shares in May and June, T.J. Rodgers, one of the largest individual

shareholders, donated half his share ownership to his charitable trust,

which subsequently liquidated the shares.  While there is no direct

evidence of insiders selling ahead of bad news, Prescience Point Capital

has tied the sales to the publication on its report, which effectively

amounts to illegal insider trading.

Claims lack evidence

These are extraordinary accusations, that, if correct, will land the

company and its officers in dire legal trouble.  As a shareholder, we have

taken the Prescience Point Capital report seriously and have to the best of

our ability tried to validate the various claims.  Investing is like a mosaic

where you put the different pieces together from different sides to see the

full picture. 

We can never assert 100% certainty of dueling assertions like these, but

after further research and direct discussions with the company’s finance

and account team about each of the points, we conclude that most, if not

all, claims in the report are either directly false or have been carefully

curated with a set of assumptions and innuendos to present a significantly

misleading picture of fraudulent behavior where there isn’t any.

Investment thesis remain intact

Roughly 40% of all new energy that came online in 2019 was from solar,

and the space is continuing to accelerate its growth and importance to

every country in the world. The micro-inverter market is expected to

grow at almost 20% over the next 5 years, and Enphase will likely grow

well ahead of that pace.

With a $5.7 billion market cap, Enphase is now trading at rough 8.5x

expected 2020 revenue and 43x expected 2020 earnings. As we explain

in this note, the margin expansion achieved are real and will likely

continue over the next several years with 2021 earnings expected to grow

by roughly 40%.

Despite the claims outlined by Prescience Point Capital, Enphase remains

one of the most important companies in the solar space and our

investment thesis and 12-month target price of $65/share remain intact.

Download the entire report here Enphase Update

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