Caesarstone Stock Battered Again
By Emerson Schwartzkopf
Caesarstone’s stock (NASDAQ: CSTE) took another hit last week with the release of a report calling recent financial performance in question – and then dropped again yesterday as most stocks rebounded from the big dip caused by Chinese markets earlier this week.
The Israeli quartz-surface manufacturer received a share-price chop several weeks ago when second-quarter 2015 results – while still showing a profit – didn’t meet with Wall Street expectations. The company also lowered its guidance for the rest of the year, informing stock analysts that revenues would be lower than projections made earlier in the year.
On Aug. 19, Caesarstone became the focus of a report issued by Spruce Point Capital Management, a New York investment firm focusing on identifying stocks for short selling (where shares are technically borrowed and sold in anticipation of prices going down, after which shares are bought at a lower price and investors pocket the difference).
The report (available here) alleges that Caesarstone’s second-quarter statements were “the canary in the coal mine,” citing numerous examples where the company appeared to be at odds with a picture of good financial health and that shares should be worth far less than current NASDAQ trading levels.
Among the particularly unfavorable evidence is a study commissioned by Spruce Point and conducted by the senior laboratory manager at Rutgers University. The study, after testing samples of quartz surfaces from Caesarstone and other manufacturers, offered a general conclusion that density is reduced if more resin binder is used in making the surfaces; Caesarstone showed lower densities (although not the lowest).
The study also submitted samples to 600°C temperatures in thermogravimatric analysis to burn off the binder and measure the weight loss to determine the percentage content of quartz in the original (before burning) sample. Both Caesarstone examples, by this measurement, exhibited less than 90% quartz – although not one of the examples managed to hit the generally accepted (and marketed) 93% level of natural-quartz content.
Caesarstone issued a statement on Aug. 20, noting the Spruce Point publication as “to be a generally misleading report that includes inaccuracies and tendentiously false conclusions.”
“We stand by all of our previous public statements, regulatory filings and presentations,” said Yos Shiran, Caesarstone CEO. “This includes those statements that a recent ‘short report’ seeks to call into question. We are proud of the honesty and integrity with which we have operated our business and categorically reject any suggestion to the contrary.”
The statement also cited Spruce Point as “a self-identified short-seller in the Company’s stock, which indicates that due to its short position in Caesarstone’s stocks it shall realize significant gains in the event that the price of Caesarstone’s stocks declines.”
“We are a strong company with a powerful brand that produces high-quality and innovative products through an efficient operation and state-of-the-art infrastructure,” Shiran added. “This has enabled us to consistently produce excellent business and financial results and we believe in the Company’s capability to continue to do so.”
Caesarstone’s stock price, which dropped from $71.90 on Aug. 4 to $49.01 on Aug. 6 after releasing second-quarter 2015 financial data, dropped to as low as $39.77 following the release of the Spruce Point report. The stock closed on an up note last Friday at $45.02, and weathered Monday’s Big Dip reasonably well to finish at $42.44. Caesarstone didn’t catch today’s upswing, however, finishing at $39.05 – the lowest close since October 2013.
The large price drop, along with the Spruce Point report, also brought out announcements by law firms seeking to collect Caesarstone investors in class-action lawsuits. At least two firms announced filings yesterday.
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