Short Selling

Enviva Inc short seller attack: what does the insider transaction and short interest data tell us?

The image's background depicts green leafed trees picture, with the blog introduction mentioning the classic case of bulls vs bears on top.

Shares in wood pellet producer Enviva Inc (EVA: US) fell last week after short-seller Blue Orca published a scathing report on the company. In its report, Blue Orca described the company as a “dangerously levered serial capital raiser” and said that it expects Enviva’s stock price to contract significantly from current levels.

In these kinds of situations, it’s worth turning to insider transactions and short-selling data for insights. This data can provide a more complete view of a company’s fundamentals, and help investors cut through the noise. So, let’s take a look at the data on Enviva to see if it provides any valuable insights.

The Blue Orca report on Enviva

Before we get into the data, it’s worth summarizing Blue Orca’s report.

In its report, Blue Orca says that it believes:

  • Enviva’s EBITDA and adjusted gross profit are inflated.
  • Enviva will cut its dividend as it doesn’t generate the cash needed to support the payout.
  • Enviva is greenwashing its wood procurement.
  • Enviva will be forced into further dilutive equity raises in the near future.

“Ultimately, we view Enviva as an ESG farce, and evidence of greenwashing in the Company’s procurement processes undermines not only Enviva’s suitability as an ESG investment but future demand for its product. In addition to evidence of greenwashing, it’s also a bad business. Enviva’s troubling cash flows, dangerous leverage, and unsustainable dividend only add further momentum to the short thesis, which is why we expect the stock price to contract significantly from Enviva’s current nosebleed valuation,” writes Blue Orca in its report.

Enviva’s reply to Blue Orca

It’s worth noting that Enviva immediately published a response to Blue Orca. In its response, it said that Blue Orca’s report contains numerous errors, repeats previous unsupported speculation and gross mischaracterizations, and draws specious, misleading conclusions.

Short selling data

In terms of the short-selling data, there are certainly some red flags here.

For a start, the number of Enviva shares on loan has risen significantly recently. Six months ago, only around 690,000 EVA shares were on loan. Today, however, the figure stands at 4.2 million – nearly 510% higher than six months ago. This tells us that short sellers have been aggressively ramping up their downside bets here in recent months. This is concerning as sharp rises in short interest are often followed by share price declines.

Secondly, the level of short interest is relatively high. Enviva’s free float currently stands at 36.1 million shares. This means that roughly 11.6% of the company’s free float is on loan. This high level of short interest suggests that Blue Orca is not the only short seller targeting the stock right now.

Insider transaction data

Turning to the insider transaction data, it’s interesting to see that a number of insiders have purchased stock recently.

Back in June, three insiders bought around $1.75 million worth of EVA stock:

  • CEO/Chairman John Keppler (16,422 shares @ $60.57 per share)
  • CFO Shai Even (4,300 shares @ $58.85 per share)
  • Executive Vice President Thomas Meth (8,600 shares @ $58.78 per share)

More recently, from October 12 to 14 – the day Blue Orca’s report was published – there were seven more insider stock purchases:

  • CEO/Chairman John Keppler (4,943 shares @ $50.65 per share)
  • Executive Vice President Thomas Meth (5,000 shares @ $50.84 per share)
  • Executive Vice President William Schmidt (5,023 shares @ $50.18 per share)
  • Director John C. Bumgarner Jr. (15,000 shares @ $51.34 per share)
  • Vice President Edward Smith (3,000 shares @ $51.92 per share)
  • Director Ralph Alexander (3,850 shares @ $51.68 per share)
  • CFO Shai Even (4,900 shares @ $51.53 per share)

These purchases cost a little over $2.13 million.

Also on October 12, 10% owner Inclusive Capital Partners LP bought 200,000 Enviva shares at a price of $50.69 per share. This trade cost the investment management firm – which has a focus on companies that have a measurable positive impact on the environment and society – just over $10 million and took its holding to 5.412 million shares. Inclusive Capital later continued its buying spree on October 13 and 14 respectively; purchasing a total of 76,446 shares, worth almost $3.87 million worth of EVA stock.

Bulls versus bears

Putting this all together, we appear to have a classic case of bulls versus bears.

The short selling data indicates that a number of institutions are bearish on the stock at present.

However, the insider transaction data tells us that those within the company, and a major investor, are bullish on the stock. They clearly believe the short selling report has no merit.

At this stage, it’s too early to know who is right here. We will watch with interest as the story plays out.

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