dLocal is a Uruguayan company that provides cross-border payments with a focus on connecting global companies with emerging markets. It was founded in 2016, became Uruguay’s first unicorn (privately held startup valued at more than $1bn USD) and listed on the NASDAQ in 2021. Now Muddy Waters, one of the most famous activist short sellers, have released a short report on the company and dLocal’s share price is down ~40% since.
Muddy Waters claim “our research leads us to believe that DLO is likely a fraud” while also noting “concerns over its disclosures about, and controls of, client funds”.
The company is challenging Muddy Waters’ claims. When MW first released their short report, the stock fell 55%. But since then, the company’s stock is up 40%.
The report gives some great insight into how fund managers analyse a company’s balance sheet and publicly reported statements. It also gives an indication into why spotting bad behaviour is so hard in public companies, it requires a granular examination of publicly reported numbers which most market participants are not willing to do. Which is why, whether MW are correct here or not, we are thankful that short sellers like this exist. They have a track record of picking up issues that other investors and regulators often miss.
This is an excerpt from our Thought Starters email. Once a week we send you 5 interesting articles that have caught our attention, to get you thinking. No spam, we guarantee.