ShotSpotter: Bracing For A Bear Raid

ShotSpotter (SSTI) first came to my attention three months ago. After reviewing the company’s first earnings as a public company, I became convinced that the company’s gun detection technology and business had enough potential to be worth a speculative investment. I proceeded to accumulate shares at lower prices and at a higher price ahead of the company’s second earnings report on November 7th. After investors and traders greeted those earnings with strong buying interest, I assumed that the market was coming around to recognize the potential that I saw.

Yet, starting the following week, sellers stepped in. I did not worry much at first because the volume was exceptionally light. When sellers finished erasing all the post-earnings gains, I worried a little more. I worried even more as the stock started this week by swiftly selling off to close on its line of support at its 50-day moving average (DMA). On-line, I searched for and speculated about several catalysts; nothing conclusive turned up.

The next day brought the news that suddenly seemed to explain the sudden lack of buying interest: a bearish piece on SSTI with the frightening headline “Short $SSTI: ShotSpotter is worse than you thought.” Without being familiar with the author MOXReports, I was surprised by the surge in trading volume and resulting collapse in the stock. Of course, with the report coming in a holiday-shortened week, determined traders can more easily move the price of a stock with a small float. The 598,000 shares traded is second only to the volume on SSTI’s first day of trading. At its lowest point, SSTI closed the gap up formed on October 2nd with a stomach-churning 12.5% loss. Much to my relief, buyers stepped in to send the stock upward and near a flat close on the day. Sellers returned today (Wednesday, November 22) and closed the stock with a 5.0% loss. So clearly this drama is far from over, and I am bracing myself for a more prolonged bear raid.

ShotSpotter (SSTI) hangs precariously below its 50DMA after a bearish piece from MOXReports greased the skids on the stock. Buyers are so far trying to hold the line at October 2nd's gap up.

 

ShotSpotter (SSTI) hangs precariously below its 50DMA after a bearish piece from MOXReports greased the skids on the stock. Buyers are so far trying to hold the line at October 2nd’s gap up.

Source: FreeStockCharts.com

I thought the most difficult part of holding for the long-term would be the ups and downs of a lumpy revenue stream. As with any speculative IPO, I also warily looked ahead toward what could happen after the company’s lockup expired and opened up the floodgates for insiders to dump shares. I became mildly hopeful that the event would provide liquidity for bigger investors to join the shareholder base. Someone later pointed out to me that the total shares outstanding is likely too small to matter one way or the other. Yet, MOXReports seized upon the lockup expiration of 8M shares as the deadline to prove its charge that SSTI’s IPO is a fraud created to provide long-suffering insiders with a liquidation event for their investment. The report claims that once insiders dump their shares, the fraud will be exposed as the company starts to come clean. MOXReports pegs the company’s eventual value at a rock-bottom range of $2-4.

The report is quite long and provides a lurid account of deceptive business practices. Here is the summary from the report:

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Full disclosure: long SSTI

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