Golden Heaven (NASDAQ: GDHG) stock is down 28% on the back of a short selling report from Hindenburg Research. Hindenburg is not perfect in these matters but it is pretty darn good. This means that we do not have to believe everything they say but we do and should take note of it. And, if what they’re saying here has any truth to it at all (and we’re inclined to believe them here) then the big question about GDHG stock is how much further is it going to fall?
The basic business line: “Golden Heaven Group Holdings Ltd., an offshore holding company, engages in the development, construction, management, and operation of urban amusement parks, water parks, amusement projects, and amusement facilities in China. It operates six amusement parks, water parks, and complementary recreational facilities.” Now that may sound good. 6 facilities the size of DisneyWorld would be a pretty big group in fact. But they’re not - even in Golden Heaven’s own documentation they’re parks with capacities of 1,000 and 2,000 people at any one time. Universal Studios sized operations these just are not.
The Hindenburg allegations are here. They’ve checked the business levels at the parks and they seem to be nothing like what is claimed. And 6 pretty small parks don’t, we think, add up to $1.2 billion in market capitalisation anyway. But there’s more to it as well. The brokers who brought the IPO to market back in the spring all have, hmm, interesting track records, as do the auditors. The CEO and senior management have even more fruity and spicy business records and backgrounds.
The essential point Hindenburg is making is that they think this is a company that never should have been allowed on Nasdaq in the first place. Just far too, too, “interesting” as we might put it.
However, there are two more things we should point out. One is that there appears to be no stock left to borrow - the float is small - so there’s little point in trying that. It’s thus something to watch, not participate in perhaps. The other is that run up in the stock price since the IPO. There’s been nothing very much to drive that. The supposition is that there’s been some hype and not much more. But that means that the collapse, if it arrives, is going to be heroic. For hype of a stock price, as with a pin and a balloon, deflates pretty quickly once the underlying numbers are called into question.
It’s possible that being short here really isn’t possible - but we’d definitely not be long.