SUPERNEWS

Equities

PowerSchool Up 15% Amid Takeover Talk, Short Seller Holds

Spruce Point remains bearish on PowerSchool despite a 15% stock surge amid Bain Capital buyout speculation, highlighting the unpredictable outcomes of short selling.

By Alex P. Chase

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5/9, 15:30 EDT
Arista Networks, Inc.
Globus Medical, Inc.
Zillow Group, Inc.
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Key Takeaway

  • PowerSchool's shares surged 15% amid Bain Capital takeover speculation, despite Spruce Point's bearish report and a year-to-date decline of 19%.
  • Spruce Point's short reports have led to mixed outcomes for targeted companies, with some recovering or surpassing pre-report valuations.
  • First-quarter earnings and strategic announcements like PowerSchool's potential acquisition talks and Wolverine World Wide's share repurchase program are driving market dynamics.

Market Reactions to Short Selling

Spruce Point Capital Management LLC maintains its bearish stance on PowerSchool Holdings Inc., despite a significant stock price recovery following deal speculation. The education technology company's shares surged by 15% after reports of Bain Capital's interest in taking PowerSchool private, countering the negative impact of Spruce Point's mid-April short report. Ben Axler, Spruce Point's founder and chief investment officer, expressed skepticism about Bain's interest, citing the risks outlined in their report. Despite recent gains, PowerSchool's stock remains down approximately 19% for the year, highlighting the volatile nature of short selling and the potential for rapid market shifts.

Spruce Point's Track Record

Spruce Point is known for its impactful short reports, which often lead to immediate declines in the targeted companies' stock prices. However, the firm's influence varies over time, with some companies recovering or even surpassing their pre-report valuations. Recent targets include Boot Barn Holdings Inc., which saw a brief dip before closing up 0.8% on the day of Spruce Point's report, and Zillow Group Inc., which has lost about a quarter of its value since Spruce Point's bearish call. Other companies like Super Micro Computer Inc. have experienced significant gains despite initial drops, illustrating the mixed outcomes of Spruce Point's short-selling activities.

Earnings Season Impact

The first-quarter earnings season has brought mixed results for various companies, with notable winners and losers emerging. Arista Networks and Globus Medical reported strong performances, leading to substantial stock gains. Conversely, DoubleVerify and Treace Medical faced sharp declines after adjusting their full-year forecasts downward. These movements reflect the broader market's search for direction, as evidenced by minimal changes in major indices like the S&P 500, Nasdaq 100, and Dow Jones Industrial Average.

Strategic Developments

In addition to earnings reports, strategic announcements have influenced stock prices. PowerSchool's shares jumped 20% amid reports of potential acquisition talks, while Wolverine World Wide's announcement of a $150 million share repurchase program signaled confidence in its financial health, resulting in an 11% stock increase. These developments underscore the dynamic nature of the market and the various factors that can impact company valuations.

Street Views

  • Ben Axler, Spruce Point Capital Management (Bearish on PowerSchool Holdings Inc.):

    "Bain is an accomplished investor but we question why it would want to buy PowerSchool given the significant risks and issues we highlight in our report, some of which appear to be coming to fruition... We remain short PWSC."