Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Globant S.A. (NYSE: GLOB)
NEW YORK, April 4, 2018 /PRNewswire/ -- Report entitled "Crisis of Confidence in Management" outlines how Globant faces 40%-50% downside risk or $24.50 to $29.50 per share as a result of the markets realization of declining organic growth and a crisis of management confidence.
- Premium Stock Valuation Is Predicated On Organic Growth: Management is reluctant to discuss, and appears to overstate, its decelerating organic growth. In 2017, Spruce Point estimates that almost half (>47%) of Globant's growth was from acquisitions. This is well below management's consistently touted 20% plus organic growth rate. Furthermore, we estimate organic growth has been decelerating as indicated by shrinking growth amongst its top clients.
- Outsourced IT Operations Has Yet To Generate Meaningful Free Cash Flow: Globant's adjusted EBITDA of $64.6m in 2016 only translated into a paltry $7.4m of free cash flow and negative cumulative free cash flow since IPO. Globant's unusual involvement in trading and investing has generated $68m in cash flow between 2011-2016. Spruce Point's adjusted "adjusted EPS" for outsourced IT operations are on average 36% lower than adjusted EPS numbers reported by Globant.
- Behavior and Decisions of Management Should Give Investors Significant Pause: In addition to the above concerns investors should challenge management's inconsistent use of accounting adjustments, weak corporate governance and staggering level of insider selling. WPP, Globant's largest investor, is investigating CEO Martin Sorrell (Globant Advisory Board member) for misuse of company assets and allegations of improper behavior. We believe this could lead to a major overhang on Globant's share price.
The research report can be found on our website at www.sprucepointcap.com and updates will be posted on twitter @sprucepointcap.
Spruce Point Capital has a short position in Globant (GLOB) and stands to benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.
