There’s a common strategy for a company to take a short position in a company, then issue a research report explaining why. Typically, such reports will take company statements and claim that they’re embellished in some fashion.
Often, these reports aren’t true, or have an element of truth to them that are grossly exaggerated, even if allowed under accounting standards. But in the short term, shares can get knocked down, allowing the short seller to profit quickly.
The most recent short seller attack has come for C3.ai (AI). The artificial intelligence company has now shed 30 percent in a matter of days, although the stock has still more than doubled this year.
The short report suggests that C3.ai has been overstating its revenues and margins.
While shares may have some short-term downside thanks to this report, investors who feel that they’ve missed out on the AI trend now have another crack at buying into the AI story without paying all-time-high prices.
Action to take: Investors interested in AI may want to use a drop to the low $20 range to buy shares. C3.ai is still in its early stages, and isn’t profitable. But the company is valued under $3 billion, and likely has substantial upside for long-term investors who can hold through the volatility.
For traders, the July $30 calls, last going for about $3.35, offer mid-to-high double-digit returns on a rebound in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.