Short selling data can provide investors with valuable insights. Short-sellers tend to be well-informed, high-conviction traders. If they’re targeting a stock, it can pay to exercise caution towards that security.
In this report, we are going to highlight some interesting short-selling activity at Intrusion Inc (INTZ:US). Intrusion is a US cybersecurity company that provides network monitoring and analysis solutions to a range of customers including Fortune 500 companies and the US government. It's key offering, ‘Shield’, is a Security-as-a-Service (SaaS) solution for businesses of any size and government agencies. The company is listed on the NASDAQ Capital Market and currently has a market capitalization of $314 million.
Intrusion: Short Selling Activity
An analysis of short-selling activity at Intrusion reveals several red flags. Firstly, short interest is relatively high. Our data shows that currently, short interest is approximately 8%. This suggests that a number of sophisticated investors are expecting the stock to fall.
NASDAQ data shows that short interest here has spiked in recent months. On 15 April, 1.6 million shares were being shorted. That compares to 304,790 shares on 15 January.
Secondly, the utilization rate has increased from 50% to 95% in the last week. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. This rise from 50% to 95% tells us that demand from short sellers has surged recently.
It’s worth pointing out that this short-selling activity comes after former CFO Michael Paxton, who was with the company for 34 years, sold around a quarter of his holding in the company.
White Diamond Short Report
Intrusion (whose share price is up around 500% over the last year), has recently been targeted by White Diamond Research, a research firm that sells information to hedge funds and high-net-worth individuals. In a critical short report, the firm alleges that:
● Shield has no patents, certifications, or insurance, which are all essential for selling cybersecurity products.
● Shield is based on open-source data already available to the public.
● The companies that took part in Shield’s beta test case study are associated parties.
● Intrusion’s Chairman, Tony LeVecchio, was also the Chairman of UniPixel (UNXLQ), which was a touch screen pump and dump scam that faced SEC charges.
White Diamond also states that according to Intrusion’s investor relations rep, the former CFO, Michael Paxton, resigned because he’s “scared to death.”
The research firm says that it has a $4 price target on INTZ, about 80% below the current share price.
As a result of this short report, several law firms have announced purported investigations into the cybersecurity company, with one firm filing a class action suit in the Eastern District of Texas naming the company’s CEO and CFO as defendants.
Intrusion Stock: Caution is Warranted
Intrusion has responded to White Diamond by stating that it believes the claims in the lawsuit are “utterly without merit.” It has also said that it intends to defend itself vigorously.
However, given the high level of short interest here and the surge in the utilization rate, we think caution is warranted towards the stock right now.