The following is an excerpt from ValueWalk’s interview with the CEO of Grizzly Research, an activist short selling firm. In this part of the interview, the CEO discusses GSX that falls in to the COVID-19 plays category, GSX’s numbers are too good to be true, and the independent rankings of big businesses. The CEO whose identity is still anonymous will be revealing it shortly exclusively to ValueWalk. Please stay tuned for the full video interview with transcript or hear his top idea it our upcoming conference.
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When portfolio managers get started in the business, their investing style often changes over the years. However, when Will Nasgovitz bought his first stock when he was 12, he was already zeroing in on value investing, and he didn't even know it. Nasgovitz has been with mutual fund manager Heartland Advisors for almost 20 years, Read More
Any ideas you can talk specifically?
Yeah, I mean, I think, there are a couple of ideas that we recently published on for example GSX would be a company that in a way maybe falls into the category of COVID-19 plays as an online education company in China they should be one of the companies that maybe profits from the from the quarantine situation, but you know, we just think that the company's financials can simply not be trusted. We think the student counts are exaggerated a lot of numbers that it's put together don't make sense and and you know, we've written an extensive report on why we think this company is really one company that the SEC should should take a close look at sooner rather than later.
Maybe one other thing that I would like to comment on, you know, to talk about concrete companies is the recent buyout offer that WUBA, 58 dot com had, you know, we published on the company, the stock went down a bit, and then they received a buyout offer You know, on the night, or the day after LK had to announce, it's accounting debacle, you know, and other Chinese stocks went down, of course that as well.
But WUBA went up because they supposedly got a buyout offer. But they didn't mention this that, you know, one of their directors is actually also on the board of directors of the supposed buyer. The supposed buyer doesn't have the money. It's it's a giant charade. And I feel like if if, you know, if the SEC doesn't do anything in these cases, you know, at some point, we become a total joke, you know, and it's really something I think that I would, would urge regulators to take a look into the situation.
Can you go over the numbers more on the GSX one, and what specifically we're looking at?
Yeah, I think if you just a preliminary scanning, I think of the numbers should have revealed that this company it just falls into the into the screening category just numbers too good to be true. So we're talking about thousand 350%. And then really outrageous year over year growth rates that, you know, competitors are not able to achieve, and they're already at decent size. We're talking about, you know, big absolute numbers.
At the same time, we are looking at the profitability profile that no other competitors are able to achieve. And, you know, a lot of numbers there are just completely out of whack. where, you know, one, one of their staff teachers is teaching more than 50 times as many students then, you know, comparable teachers in their classes, you know, from or Techedu competitors of theirs. And when you really start digging into the company, you start to figure out that nobody in China really knows this company as a credible education provider, we looked at that this was not a $10 billion company, you know, like, No, nobody knows about this company.
They're Not known in any ranking, when we found independent third parties reviewing their services, they all said, you know, you know, it's outrageously bad, basically. And then we started digging into web traffic analysis, and figured out that, you know, all the data that we could pull from there would imply that the majority of the students they claim to have on their platform are just fabricated.
And I don't want to say too much here right now, because we are still intensely working on this case. But we're looking to procure smoking gun evidence, on our allegations here that we think we have substantiated very well in our report. But we're working on actually getting more smoking gun evidence here. This company is not a 10 billion dollar company, not a billion dollar company. We believe that it's a scam, you know.
The survey that you did is an independent survey that you conducted yourself to see how many people were aware of GSX?
Not we didn't want to do surveys. These things have the problem in our opinion that they're too open to criticism, somebody would say, well, that it's a tiny sample size, and it might be selective. And there's 1000 angles to like to say that this data is not credible. For us we like independent rankings of big businesses, for example, that are ranking online education schools like information portals of all different kinds, you know, and GSX is nowhere to be found there in any top 10. You know, they're not even mentioned. So they're supposedly one of the indications as in China, everybody in China saying that they're not. And yet a couple of more more things that, you know, it best. Like there's a lot of details that come together that doesn't make any sense. And that's probably better to look into the report.
I'm looking here on Yahoo Finance and yeah, it's crazy that they're $10 billion company and they even put them as one year price target of $380 on Yahoo Finance.
I would I doubt that to come up because I think it's so obvious that the company is doing something wrong that auditors and regulators will be pressed to to look into this year. I don't think that they will be able to cover up the wrongdoings for a long time.
Any timeline on you finishing that and getting all the evidence that you need?
I can’t give you guys a time here right now we are very actively working with a lot of people from China that reached out to us after we published our first report , it was an unusual number of people who reached out to us to say well you guys are correct here. And these guys are a terrible predatory company that, you know, the few students that they can actually choose just to, you know, predatory marketing. And, you know, the vast majority of students are created by employees of the company. These allegations are from China over and over again. There's something that was unique. It's unique in our experience, you know, we've never had as many people from China reach out to us and say, you guys actually right, these guys are terrible.