If you’re not currently a premium subscriber and wondering what you missed, here’s a snippet of George explaining why he believes the company’s guidance for pouch sales this quarter is too low – in part because of a newly introduced product.

And the impact on sales with heightened friction between Tucker Carlson (who has a business relationship with the company, and acts as a spokesperson) and President Trump…

And a comment on his new short idea…

Now, for the full audio version of the call and George’s updated 39-page slide presentation. The slides include a breakdown of the short-term risk associated with the company’s announcement yesterday of a deal with TKO Group , and, more broadly… what could go wrong with his thesis.

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The last quarter and guidance continued to disappoint. While neither the struggling housing market nor tariffs helped, the reality is that the company appears to be struggling to the point of reaching. The proof is this comment from CEO Gary Friedman on the company’s most recent earnings call, when he said…

We’ve designed, I think, some of the most exciting retail concepts coming – it’s like new versions of RH that I think are mind-blowing, and they cost half as much. And we have other ones that are equally creative that will probably take less than half the time and cost less.

For quarters, these concepts have included “design compounds” and “design ecosystems” – all in the name of extending and expanding the brand faster.

But wait, you haven’t seen anything yet: In the most recent quarter, the focus turned to yet another new concept, RH Estates, which Friedman says “will become our largest and highest margin brand extension driving significant growth over the next several years.”

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Running On Empty?

To my pal Rob Wilson of Tiburon Research, who also writes the Consumer EQ newsletter and probably knows more about RH since he once worked there as treasurer, the rollout of all these concepts “is a jump the shark moment.”

Or as he told me…

I think it says clearly that they’ve run out of opportunities to build these large stores with restaurants in the U.S. So, they need something to show that there’s still an opportunity for growth, and this is what they came up with. But, just last quarter, they were touting their “design studios” following the opening of the first one in Palm Desert. This was a 3,000-square-foot store that used to be a Lululemon store. Now they’re pivoting to focus on the ‘ecosystem’ stuff and they’ve not even opened one up… yet, are touting its potential.

He adds…

Beware any retailer touting something they’ve not yet tested. The rate of failure is high in those situations, in my experience.

Rob, whose client base is institutional – but also writes Consumer EQ – intends to elaborate on this in an upcoming report. (If you’re interested in retail investing, he should definitely be in your mix.)

Dream a Little Dream…

The thing is, it’s not as if he doesn’t admire what Friedman has built. “I want to be clear, what he’s done over the past 26 years is spectacular. I just question how big the business will become and how profitable it will be.“

And that’s the point: As I wrote in my original Red Flag Radar on RH, Friedman is an extraordinary marketer. He doesn’t know how to just sell the dream to consumers, but to investors as well.

Look no further than the latest narrative: Citing an estimated $30 trillion to $38 trillion “wealth transfer projected to take place over the next 10 years, which is more than double the past 10 years,” Friedman says…

Not only does the absolute dollar amount more than double, it's estimated that the dollars transfer from one to an average of seven people. It's possible over the next 10 years, our market will be multiple times larger than the past 10 years. When you combine that with our efforts to elevate and expand our product, globally expand our platform, generate significant revenues and brand awareness with our immersive hospitality venues, I would argue that the RH brand is in the perfect place, at the perfect time, and we will emerge from this period of clutter, discord and difficulty, as one of the highest-performing and most admired brands in the world.

To which Rob says…

When you put out pie-in-the-sky numbers for three to four years from now with very little detail about how the numbers may or may not look from here to there… and then, you come up with a thesis that says macro factors are the major driver (e.g., ultra high net worth individuals spend more on their homes and there’s a massive wealth transfer coming)… then, you’re done.

But it also keeps the dream alive…

Or as I originally quoted Rob as saying when the stock was flying, it feeds into the “irrational extrapolation” by analysts and investors who buy into Friedman’s thesis.

The difference between then and now is that reality is winning over irrational extrapolation. But as was the case then, RH remains a game of chicken… with the shorts likely to continue claiming their own victories along the way.

At least, that’s how it has been so far, with the stock rising nearly 40% in the months following my original RH Red Flag Radar, before… crashing, crashing, and crashing some more…

In the meantime, the dream lives on.

▶If you missed my report on AXT Inc. , you can read it here…

Since then, the stock has been whipped around in what will surely go down as one of the wildest weeks for the market…

The stock took a major hit on Thursday on reports that Lumentum was including indium phosphide substrates – AXT’s specialty – as part of a major expansion at a plant in North Carolina. I could not find any evidence of that, so I asked Lumentum’s IR, which responded…

I can confirm that we did not message any InP substrate manufacturing as a part of our manufacturing expansion in Greensboro. We did mention that this will be a 6”-capable fab for InP laser chip manufacturing, but our baseline plans for this site do not include the ingot-pulling, substrate manufacturing part of the process.

That, of course, doesn’t change the thesis of my report. Ultimately, as I wrote, AXT is a tale as old as the law of supply and demand. Doesn’t matter whether it’s high‑end optical networking gear during the dot-com boom, fracking sand during the fracking boom, or even pasture-raised eggs. Indium phosphide wafers will be no different.

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The single biggest mistake investors make is looking at reward before risk. The smartest investors do just the opposite…

Looking for reasons to avoid buying a stock, or what the risks are if you do, has been the hallmark of Herb on the Street for decades and, in more recent years, my Red Flag Alerts of Stocks to Avoid.

Even in a market that seems to do nothing but go up, it’s still a market of stocks… and some can and DO go down, even as the market surges higher.

You can see that here, in my entire list of formally red-flagged stocks since inception, as of early April, 2026…

This is why, if you’re serious about investing, you should consider becoming a premium subscriber.

Whether I’m helping open your eyes to what could go wrong, or just flagging what ultimately may turn out to be an irrelevant piece of the mosaic, I like to think that I’m helping you manage or merely identify risk…

Or if you’re not an active investor, helping to educate you about why some people might be on the opposite side of your trade. I can’t stress the importance of this!

Whichever camp you might fall in, the concept is simple: with thousands of publicly traded stocks, why pick these?

Even if I don’t write about your stock: in a market where the notions that “you only live once” and “hold on for dear life” have eclipsed the concepts of fundamental investing, hopefully my Red Flag Alerts will help serve as a reminder of the risks, as it did for this subscriber, who wrote…

And this one…

And this one…

And for what it’s worth: I also fly green flags every and then. But when I do, I practice what I preach – always thinking to myself: What could go wrong?

Subscribe, and you’ll be thinking that, too.

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FAQs

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The Strategy: Red Flags & Research

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• How often do you publish? I don’t write to hit a quota—that leads to noise, not value. However, I am “wired to write.” You can expect a post (free or paid) at least once a week, approximately 46 weeks a year. In reality, I usually publish more frequently than that.

• How often do you publish new Red Flag Alerts? I only publish an Alert when I have a compelling, deeply researched case. My internal target is 8 to 15 per year. My recent track record reflects this discipline:

  • Total Alerts (May 2023 – Dec 2025): 48

  • 2025 Alerts: 15

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• Think of my newsletter as a skeptical second opinion designed to help you avoid bad stocks, bad narratives, and bad capital allocation decisions—before they cost you money.

What more premium subscribers are saying…

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DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!)

I can be reached at herb@herbgreenberg.com.

AXT is one of those companies that has attracted whatever is left of the YOLO crowd, even if the substance doesn’t match the story. It reminds me in every way of so many other companies that had their moment in the stock market sun, swept up by real or perceived potential new business from the narrative du jour.

That narrative today is that, as the construction of AI‑centric data centers has boomed, so has the demand for advanced fiber optic connectors, which rely on indium phosphide lasers to deliver the required speed.

Guess who makes critical indium phosphide substrate wafers used to make the lasers?

You got it – AXT.

It’s quite a story… and I stress… story. Perhaps no company exemplifies the silly late-stage nature of this phase of the AI gold rush more than AXT, which appears to be little more than a microcap MOMO trade gone wild… more of a throwback to the latest round of AI FOMO.

This is, after all, a stock that as recently as last spring traded just above $1, with a market value of $60 million before taking off. It’s now $60 with a market cap of $3.3 billion.

But beyond its market value and stock price, AXT still has all the hallmarks of the microcap it really is… and not just because its board of directors is comprised of three outsiders and the CEO.

And it has the financial performance to match, with muddling revenue growth and margins…

And even after being in business for 40 years, its ability to make money has at best been spotty…

To the bulls, of course, that’s looking backwards.

Bull Case

For them, it’s what’s coming next for a company they believe is in the right place with the right product at the right time. Here’s an AI-generated summary of what has been driving the stock… courtesy of my friends at Tenzing MEMO…

AXTI is a levered way to invest in one of the least-appreciated choke points in AI infrastructure: indium phosphide (InP) substrate wafers, a critical input for the lasers and detectors used in high-speed optical links inside and between AI data centers. As compute scales, optical connectivity becomes more important, and AXTI sits upstream in a technically difficult market with only a few qualified suppliers.

The near-term numbers look messy, but the bull case is that 2025 was distorted by export permit delays and temporary manufacturing issues, not by weak demand. Management has described backlog above $60 million, expects sequential growth in Q1 2026, and is seeing especially strong InP demand tied to AI buildouts. If permits continue to improve, delayed orders can quickly convert into revenue.

There is also significant operating leverage here. AXTI’s margin collapse came from low utilization and bad product mix; if InP shipments normalize and capacity fills, gross margin can recover sharply. Meanwhile, the December 2025 equity raise added about $100 million gross, leaving the company with roughly $120 million of cash at year-end and a net cash position, which gives it time to expand capacity.

In short: scarce product, real AI demand, limited competition, improving liquidity, and potentially explosive earnings recovery if regulatory friction eases.

Based on my research, that’s the story, at least, and that’s why there is no shortage of social media chatter on AXT, as seen here via Stocktwits…

But as is often the case with stocks like these, there’s the story, and there’s reality… and reality is that while AXT is a potential winner in the booming demand for indium phosphide substrates, the story ain’t all the stock suggests it’s cracked up to be.

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▶Before we get going, several quickies…

• Barring the unexpected, I have a new Red Flag Alert coming out either tomorrow or pre-market Monday. It’s a fun one. Stay tuned.

• And if you missed my update on ResMed earlier in the week, and how rival Philips is quietly tiptoeing back into the market, you can read it here…

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▶If you missed my quick ResMed update yesterday on my chat…

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This is not the time to ignore red flags. Join the large and growing list – portfolio managers, analysts, private investors – who already have signed on as premium subscribers to my Red Flag Alerts for one reason: To understand what could go wrong before – not after – the news hits. Learn more here.

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▶Before we get going, this quickie… Just back from a fun few days in Palm Springs. We’ve traveled the world, but for some inexplicable reason, even though it’s a little more than a mere two-hour drive, we have never spent time in “the desert.” And by “time,” since I don’t golf, that means doing what we do when we travel: seeing things.

In Palm Springs, we had a checklist, including a few hours on a date farm with a date farmer, as well as an exceptional architectural tour, both of which Mary will be writing about in her travel blog, “The Modern Postcard.” The only thing we had to cancel was a tour of a wind farm. Actually, they cancelled it because it was too hot. Oh, yeah, we all know the desert is hot, but we picked this time of year because it’s typically before it gets… hot. Except this year, when, in March – still the winter – it was 106 in the shade. Could’ve been worse, had we decided to go to parts of Arizona, where it was 110.

Special thanks to Fiscal.ai, Tenzing MEMO, and ManagementTrack, whose tools were used as part of this research.

Not only was the timing off thanks to unpredictably quirky weather, but it was the same week gas prices shot skyward. Paid $5.79 for premium on the outskirts of San Diego as I was leaving. Then, the next morning in Palm Springs, on our way to hike at Joshua Tree National Park, $5.39 – a bargain!. That afternoon, back in Palm Springs, I noticed the price at the same station had jumped to $5.49. When we left a few days later, the going price was $6.19. Now back in San Diego, I just spotted $6.79… Do I hear $7?

▶Back to business: if you missed my red flag report on ResMed , you can read it here…

After reading it, one subscriber, who is also a CPAP user, wrote…

I agree with your synopsis in ResMed. I was diagnosed with Sleep Apnea 4 years ago. Speaking to friends, EVERYBODY who takes a “sleep test” suffers from sleep apnea. Someday, Medicare will ask tougher questions.

As a CPAP owner and user, I get phone calls, texts, and e-mails constantly (and I mean constantly) reminding me to re-order the CPAP supplies. As you suspect, they are piling up in the closet.

Talk about a stuffed channel!

▶Moving on, while I was gone, big news on the fraud front: The indictment of Super Micro’s controversial CEO Yih-Shyan “Wally” Liaw, on allegations that he was involved in plans to smuggle Nvidia chips to China. Accounting issues at Super Micro have been a focus of the short-sellers and red flag crowd for more than three years, starting with a report by Spruce Point Management in early 2023, before the stock skyrocketed, and in 2024 by the now-defunct Hindenburg Research. Hindenburg’s report led to investigations by the Justice Department and the SEC. Within a month, the company disclosed that Ernst & Young, its auditor for less than two years, had resigned. But unlike so many auditor resignations, it gave a reason…

We are resigning due to information that has recently come to our attention, which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations

E&Y’s explanation sparked an internal investigation by “a special committee” of the company’s board.

It wasn’t until later in the saga, when Super Micro announced the special committee’s results, that I took a swipe. Not surprisingly, the committee gave the company a clean bill of health, saying that it couldn’t find what E&Y had.

The crazy part – and the focus of what I was writing – was that – get this: The special committee wound up being a committee of one person. You can read my whole piece here…

I summed it up saying…

Here’s what I know: This story isn’t over yet.

And that’s coming from me. And yes, I am a committee of one.

If ever there was a warning sign, that was it. But even more worrisome for any investor should have been not just E&Y’s resignation, but the fact that it gave a reason.

And that was just the half of it, but it gets to the bigger issue: What are the warning signs that investors should never ignore? Not that any are sure-fire telltale signs that things are guaranteed to get worse. There are, after all, always exceptions. But each suggests something might be amiss and very well may be part of a bigger mosaic worth further investigation.

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▶Which gets us to… the main event: warning signs investors should not ignore. I’ve written various “red flag warning” lists of these over the years. When stocks are going straight up, these warnings are often ignored by investors. When they’re going down, as they have been, less so, because as Warren Buffett is fond of saying, when the tide goes out, you can see who is swimming naked.

Or at least who isn’t really swimming at all in what it turns out is only chest-high water…

The latest news out of Super Micro is a reminder that not only are some companies swimming naked, but they can’t really swim.

The trick is figuring out which ones are faking it. Some of the best warning signs are often intangible; it’s more of an art to spot them. Just this week, my pal Bob Howard, of the Positive Patterns newsletter, who has been a stock-picker for decades, ran a list of his favorite warnings. Here it is, reprinted without his permission…

Quite a few of his red flags are on my own list, including a CEO’s focus on the stock price. And an infatuation with being in the media, however it’s defined today. (Says to me they’re either believing their own b.s., or know it is and have stock to sell – so you do, too!)

Others that get my attention…

• Press releases touting new big deals, without details. (Lots of that lately in the AI PR swirl.)

• Earnings releases with promotional headlines, especially touting “record” results.

• Companies that start focusing on made-up metrics.

• Companies that slyly begin eliminating various metrics; ditto if slides that have been updated every quarter in an earnings presentation disappear.

• The elimination of entire slide presentations by companies that traditionally used them.

• The elimination of any kind of guidance. I’m not a fan of guidance, but once a company gets hooked on giving it, especially as it’s growing, the only reason it stops is that its growth is about to, too. (And maybe so are some of the accounting games it may have been playing.)

• A change in quarterly or annual SEC filing risk factors that only an investor steeped in the nuances of a company would know is significant. After all, nobody reads those anymore, which makes them perfect to “disclose” things companies might prefer investors not see.

• And of course, there’s my favorite: Blaming short-sellers or the media.

• The only thing worse is responding to a question about untoward accounting by giving the boilerplate, “Our financial statements were prepared in accordance with GAAP,” often embellished by, “and were audited by our independent auditors.” (See Enron.)

Now, your turn. What are your favorite red flags? Feel free to add them in the comments below or shoot me an email.

▶In other news: a reminder of why, despite the rapid uptake of AI, humans are not about to go extinct… “Check out Veeva’s 10-K,” a friend messaged. It was a classic “go find the needle in a haystack.”

So, I fired up every AI program I use, public and behind paywalls. Using various prompts and then reasking in various ways, I asked them what the most critical changes in the document were, with a special focus on risk factors. They all came up with variations on the same theme, but nothing compelling. Then I went over to CapEdge, my go-to for black-lined filings, and did my own run through… with my eyes. And there it was, as plain as day – and missed by every AI program…

Salesforce, our primary CRM competitor, has announced that certain large Veeva CRM customers have committed to purchasing its CRM solutions and a number of our customers have informed us of their intent to move to Salesforce as their CRM provider.

That bold-faced part is new and material, but rather than blurt it out during its earnings call, the company tucked it into a 10-K risk factor, almost as an afterthought.

That’s the thing with AI… It’s a tool. But without the human element, there’s a strong likelihood the result will devolve into noisy, empty mediocrity.

Which is exactly what’s happening. Spinoffs expert Jim Osman of The Edge Research said it best…

Agreed.

▶Finally, if you missed it…

As always, interpret any or all of this at will.

DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I do not have any position in any company mentioned in this report.

I can be reached at herb@herbgreenberg.com.

This is not the time to ignore red flags. Join the large and growing list – portfolio managers, analysts, private investors – who already have signed on as premium subscribers to my Red Flag Alerts for one reason: To understand what could go wrong before – not after – the news hits. Learn more here. Subscribe here.

Sometimes in this market, you can’t move fast enough…

That’s why I increasingly try to keep premium subscribers in the loop on ideas on my list, which was the case on February 28, when I mentioned I was working on CPAP-maker ResMed . Since then, the stock has slid 8% – double the market – in the process shaving off what, at the time, appeared to be a stock with at least 30% risk.

In other words, perfect for Red Flag Alerts.

And even with the stock’s decline, the risk remains… and as I explain in this report, it’s likely underappreciated and underestimated.

Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, whose tools were used as part of this research.

Quick Background…

I’ve been doing this long enough to have seen more than enough short-sellers get steamrolled by seemingly obvious ideas…

Among them is ResMed, which is just down the road from me here in San Diego. Over all of these years, for some unknown reason, there was never enough there to excite me enough to dig deeper when I would hear the bearish bent. As a result, it never made the grade for a bona fide red flag or for a full-fledged report.

Or, you might say, I dodged a bullet, with the stock rising more than 700% over the past 10 years.

So, why now?

Because even with its stock roughly 20% off last year’s record high, including the more recent step-down, shares are priced as if there is no risk and current growth, as sleepy as it is, will continue.

Let Me Explain…

But before I do, here’s the bull case via my friends at Tenzing MEMO…

ResMed dominates the massive, underdiagnosed sleep apnea market with best-in-class CPAP devices and masks, serving over 30 million cloud-connected patients globally. The company's moat stems from superior product innovation, regulatory expertise, and sticky customer relationships in a market where less than 20% of sufferers are diagnosed. With aging demographics driving structural growth, expanding breathing health adjacencies like COPD treatment, and a profitable software platform supporting residential care providers, ResMed offers compelling long-term growth. The business generates exceptional cash flows—$1.75 billion in fiscal 2025—while maintaining strong margins and returning capital through dividends and buybacks. Recent FDA approval of GLP-1 drugs for sleep apnea validates the market's importance rather than threatening it.

Sounds good on paper, except it’s not that simple.

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This is not the time to ignore red flags. Join the large and growing list – portfolio managers, analysts, private investors – who already have signed on as premium subscribers to my Red Flag Alerts for one reason: To understand what could go wrong before – not after – the news hits.

Start flying your own red flags, to avoid the laggards and losers... because lurking under the cover of this market’s euphoria are the frauds and failures. After all, when the tide goes out…! Learn more here.

▶Before we get going… If you missed my mini case study on AeroVironment , whose big acquisition last year appears to have backfired – and not in a small way – you can read it here…

After reading it, my pal Bob Howard, who writes the Positive Patterns newsletter from “down in the Ozarks,” quipped, “I’ve been following ALL the Defense stocks for years. AVAV has always been a ‘cheesy’ outfit with C- hardware - comparable to Jack-in-the-Box in fast food.” That’s what he said!

Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, which were used as part of this research.

▶Meanwhile – I’m exhausted.

So is everybody else, bulls and bears. But for anybody who has factored risk into the investing equation, the past year has felt like a decade – or at least half of one. As was the case immediately post-pandemic, it hasn’t been merely “risk on,” but full speed ahead for unbridled speculation, supercharged as the markets merged with gambling. Except this time, as I’ve written in the past, it was speculation on steroids…

Suddenly, it was as if everyone who knew nothing about stocks knew everything about stocks and had become an overnight stock market genius.

The peak of the looniness was when Attorney General Pam Bondi, testifying before Congress about the Epstein affair, did the ultimate pivot by bizarrely blurting, out of the blue, “the Dow is over 50,000 right now… that's what we should be talking about! ”

If ever there was a top-ticking moment that anybody could see, it was that, memorialized in the chart below…

Never mind that the market’s moves higher, especially these days, is a meaningless measure of anything more than a gamified market propped up on excessive leverage, juiced by double-, triple-, and quadruple-levered ETFs. The only thing that would have been more of a market jinx would have been if Dow 50,000 had hit the cover of Time, like the fake one I created…

And don’t you worry: I’m well aware that the very fact that I’m pointing that out, with the Dow down 7% from the magical 50k, is like a reverse magazine cover… and could be a sign it’s about to boomerang. The catalyst could very well be a halt to war in Iran and… oil flowing freely through the Strait of Hormuz. Or if, in a world of minute-long news cycles, yet another shift in the narrative. And given the increasingly shortening of attention spans against the backdrop of fatigue, the war becomes yesterday’s news as quickly as it became today’s.

That’s the world we live in…

If nothing else, that long, strange trip down memory lane – one I’d prefer to forget – can be seen in the spread between the lows, highs, and current prices of individual stocks.

Look no further than the swings on the list of companies I’ve formally red-flagged since inception three years ago. Pay special attention to those in green, which are highlighted vs. their highs since joining the list. This reminder: This is not a coverage list, but merely a record of all formally red-flagged ideas… some of which might be even better now than they were back then! (The full list, including names, is available behind the paywall for premium subscribers at the tail-end of this report.)

And if you’re wondering: The biggest outlier is the stock up the most, Bloom Energy , but even it’s down from its highs. (Thanks to Paul Wick, chief investment officer of Seligman Investments – one of Bloom’s largest holders – for reaching out and sharing his bullish thoughts here well ahead of and during the stock’s explosive rise. You can read his comments here, here, and here.)

The other two outliers, highlighted above, are Oklo and MP Materials , both of which are well off their highs.

Just for fun, I also highlighted AeroVironment and Hims & Hers . (A quick comment about the latter, behind the paywall.)

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▶ Moving on… When I originally red-flagged G-III Apparel last July, in collaboration with my friend Katherine Spurlock, the focus was on the potential for the company to stuff merchandise into a little-watched, offshore related party… and how the company went out of its way not to disclose just how significant the relationship had become. Not that any of this mattered, especially in that market: Its stock subsequently rose by nearly 50%.

It has since done a near-complete round trip, hastened by a Q4 earnings miss and disappointing guidance.

While the company says the miss was almost entirely due to a bad-debt expense tied to the Saks Global bankruptcy, with management insisting it would have otherwise beaten expectations, poor guidance was mostly blamed on the continued impact of the unwinding of its PVH relationship.

After thinking through what management did and didn’t say, and putting together a few scattered pieces of the mosaic, here’s what struck me…

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With the war in Iran, you would think that drone maker AeroVironment would be firing on all cylinders. Instead, it’s misfiring… and not in a small way.

The reason it’s misfiring – highlighted by yesterday’s Q3 quarterly miss – appears to be the very reason I formally red-flagged AeroVironment in November 2024…. right before it took off like a rocket and doubled! (Never mind that it has since done two near-complete round trips, losing half its value over the last two months.)

At the time of my original report, AeroVironment had just announced it was spending $4.1 billion to acquire five-year-old BlueHalo from private equity. CEO Wahid Nawab claimed the deal would morph his company from being merely “the only profitable pure play unmanned systems companies publicly traded anywhere,” to “the leading pure-play mid-tier defense technology solution provider.”

As I wrote at the time…

This appears to be a deal out of weakness, not strength, in a story that boils down to this...

A sexy drone company whose growth is decelerating – but valued as if it’s still rocketing higher – is issuing new shares worth two-thirds its market value to acquire a non-drone, PE-owned company whose growth has gone into a nosedive.

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Profitless Growth

The irony is, AeroVironment’s legacy business is actually doing fine, but BlueHalo appears to have been nothing short of a disaster. If nothing else, this chart of legacy organic vs. its post-acquisition pro forma growth shows just how bad the deal has been…

If you need more convincing, look at how a marginally profitable company became wildly unprofitable…

Now, AeroVironment is generating profitless growth, thanks to BlueHalo’s lower-margin services contracts and immature products that haven’t yet reached commercial scale. Or as CFO Kevin McDonnell put it on the earnings call…

“The business landscape of the combined new company has changed significantly with a higher service mix and several products in the early stage of maturation. “

Except, it hasn’t turned out that way… and management’s tone – triumphant three quarters ago – is now defiantly defensive.

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In Their Own Words

After all, when the deal was announced in late 2024, Nawabi called it “transformational” and a “once in a generation opportunity.” Then, speaking at an investor conference last September, he said…

It's going to be a fantastic year with record revenues and profitability, nearly $2 billion in revenues and $300 million worth of adjusted EBITDA. We're going to be the poster child of what a defense tech company in the front should look like.

Then came yet another dose of reality, suggesting that if AeroVironment is the poster child of anything, it is on its way to becoming the poster child of what happens when a private equity seller is smarter than an eager corporate buyer…

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▶CoreWeave simply can’t help itself…

Whether it’s the steady flow of press releases, the tone of its earnings calls, management’s narrative in TV interviews, or, as it turns out, even its SEC filings, the company is off-the-charts promotional.

Look no further than its 10-K, released earlier this week. The filing reads as though CoreWeave’s marketing department wrote it. This is its first-ever 10-K. And while it’s not unusual to see a promotional line here or there in what otherwise is a pretty dry document – even a bit more storytelling by newly public companies like CoreWeave – there’s promotional… and there’s promotional!

It starts with the very first sentence of the “business overview” section at the top of the filing, where CoreWeave…

CoreWeave is The Essential Cloud for AI™, purpose-built to accelerate breakthroughs by AI pioneers, from leading research labs to enterprises fueling business growth.

Compare that with its chief benefactor and circular financing partner, Nvidia , no stranger to promotion, which says…

NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. NVIDIA is now a data center scale AI infrastructure company reshaping all industries.

The difference may appear to be subtle, but it’s significant, starting with CoreWeave’s use of the “™”.

Like a Pitch Deck…

It’s one thing if we’re talking about slick annual reports, which fewer companies publish. It’s another if it’s the 10-K, where a company - especially in the “risk factors” section – is supposed to bend over backwards to tell you what can go wrong. On that score, to its credit, CoreWeave doesn’t skimp.

The rest of the document, however, reads like a pitch deck – and that’s off the baseline…

For a sanity check, without offering up any bias, I asked Fintool, which bills itself as an AI agent for stock research, to do a run-through of the filing and highlight anything that seems overly promotional. (This is an exceptionally good use of AI, with the obvious caveat – I still needed to double-check the claims.) After providing a long list, it offered up this assessment (emphasis by me)…

While companies do highlight their competitive advantages in 10-K filings, CoreWeave's language goes beyond typical disclosure. The document frequently blurs the line between regulatory filing and marketing material. Most established public companies use more measured, factual language (e.g., "we believe our infrastructure provides competitive advantages" rather than "best-in-class" and "unmatched").

For a backup, I did the same with Claude, which claimed it was applying “pattern recognition from having processed a lot of SEC filings in training.” It came back with…

On a promotional tone scale, I'd put CRWV's 10-K around a 7.5/10 compared to an industry average of maybe 4–5. It's not in Theranos territory, but it has the fingerprints of a company that IPO'd in a frothy environment and hasn't fully separated its investor relations voice from its SEC disclosure voice.

Some Highlights…

Here are more examples, via Fintool, starting with the use of trademarked marketing slogans…

And superlative and hyperbolic claims…

And self-congratulatory performance claims…

And on and on…

▶Meanwhile, beware of the cracks…

One response to that first one from …

Which, of course, is what happens when the tide goes out…

Updates on TPB, SHAK, VEEV, HIMS

▶Smoked! Shares of Turning Point Brands , on my list of Off Everybody’s Radar ideas, tumbled 15% on earnings earlier in the week and 35% from their all-time highs of less than two weeks ago. While beating consensus, results were likely lower than investor expectations; worse, guidance was an outright disappointment.

Of course, we’re in a market where small caps, in many cases, were rising too far/too fast for comfort. Turning Point was among them, up 79% since I first mentioned it in July and, at its highs, having more than doubled over the past year.

Short of perfection, Turning Point was primed to plunge.

Is this bad news for bulls? (Disclosure: I own shares.) There’s nobody better to ask than George Baxter of Sabrepoint Capital, who isn’t just the biggest bull but also the source of my original Turning Point report. His full slide presentation, from the time, can be seen here. Or my interview with him, here.

George’s take on what happened – and whether he’s disappointed to the point of throwing in the towel…

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Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, which were used as part of this research.

Something for everybody…

▶I don’t need charts or technical indicators to tell me the tone of this market is exactly opposite of where it was six months ago…

What was FOMO is now FOLYA… or fear of losing your ass.

Just as individual stocks were rising by an unhinged 10%, 20%, 30% or even more on a single AI-or crypto-related headline – in what I called a throw-a-dart-market – we’re now at that point where they’re now falling just as much on earnings misses, poor guidance or merely the reality that they never deserved to be as high as they were. Look at Sunrun , my very first Red Flag Alert from May 9, 2023… plunging 35% Friday on guidance. As the chart below shows, it’s down 20% since my first salvo, though at one point it was off by nearly 70%.

But for the AI bubble, the velocity of hubris reached its peak in September, the day Oracle’s stock spiked an unimaginable 35% on AI-related news. (Unimaginable, that is, for a company that large.)

The CoreWeave ‘Tell’

At about the same time, in what I had tagged as a harbinger of how silly things had become, CoreWeave announced the launch of CoreWeave Ventures, to start funding other money-losing companies it believes would be “the future of AI.” Its stock was up on the news that its new VC fund already had nine portfolio companies. There’s even a CoreWeave Ventures website. For what then was an eight-year-old company with no earnings, no free cash flow, and colossal levels of net debt, that made and makes zero sense, of course. I wrote as much in my “Why CoreWeave Is So Important to Watch” report, with this description of the rollout of the VC angle.

This is hardly a canary-like moment, but it’s one you shouldn’t ignore...

With CoreWeave’s stock tumbling nearly 20% Friday on a bigger-than-expected loss (who woulda thunk?!), analysts and investors finally appear to be growing antsy over the CoreWeave story, especially whether the company is overspending on its financial commitments to build even more data center capacity.

Think of It This Way…

Investor enthusiasm over AI has turned so sharply that Amazon , whose stock is back to where it was a year ago, could barely muster a 1% gain after announcing it was investing $50 billion into OpenAI, or roughly half the amount OpenAI is hoping to raise.

Time was, not that long ago, such an announcement would have been a launchpad for its stock, as was the case for Microsoft after OpenAI was first rolled out in late 2022. That was followed less than two months later by reports that Amazon was investing $10 billion into the company. That news lifted all boats, including Amazon. Today, one seems more desperate than the other…

The quiet part out loud, of course, is that all of these big deals involve companies engaged in so many circular AI infrastructure transactions that they have no choice but to continue investing. If one stops, well, Jenga, anyone?

Your move.

New Ideas Plus Updates on VITL, SGHC, ERIE, NDSN

▶Off Everybody’s Radar – If you missed it, Off Everybody’s Radar is where I stash possible new long ideas. I do them sparingly, and you can find all of them by clicking this button at the top of my home page. While I’m still not 100% there, rather than hold off, in the spirit of keeping you in the loop on some things I’m working on… Trust me when I say: With its stock down 76% over the past five years, having been a Covid

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▶I’ve been saying for what seems like forever that this market is hanging by the thread of the next headline…

Who knew that headline would be a work of dystopian fiction by a research firm many, if not most, people have never heard of, headlined, “THE 2028 GLOBAL INTELLIGENCE CRISIS,” with the subhed: “Thought Exercise in Financial History, from the Future.” You can read the report from Citrini Research here…

Citrini Research

THE 2028 GLOBAL INTELLIGENCE CRISIS

Preface…

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2 months ago · 2679 likes · 76 comments · Citrini and Alap Shah

The Cliff’s Notes version of the report: Two years from now, thanks largely to AI, in keeping with what some have been forecasting, we’re f*cked screwed. The report, a long-awaited sequel to Kurt Vonnegut’s Player Piano, names some names and lays out some scenarios.

Never mind that its authors call it a “thought exercise,” and acknowledge, “We are certain some of these scenarios won’t materialize.” Or that Citrini, on Twitter, wrote…

Or that the report’s co-author, Alap Shah, told Bloomberg yesterday, about the market’s reaction…

I thought there was going to be a small reaction — it was definitely larger than we expected.

Therein Lies the Story…

Regardless of whether all, none, or part of the report turns out to have been truly prophetic – and more than a few elements likely will – the bigger point is this: Their essay landed just as concerns over private credit being used to fuel the AI buildout are growing, as geopolitical risks are on the rise, and as the gamification and outright speculation of the markets has hit full tilt… all while the President of the United States is trumpeting the Dow having hit 50,000 in the midsts of all of this as if it it’s a measure of him rather than the market being the market.

With that perfect storm of timing as the backdrop, the essay shook investors who’ve become accustomed to 20%, 30%, 40% swings in the prices of individual stocks in a heartbeat… as if that’s normal. (Hint: It’s not.)

For its part, Citrini’s bias is that “the premium on ‘human intelligence will narrow.” And that, “We still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade.”

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On The Other Hand…

“Peak fear” is how one buddy, who has for several years been actively invested in some of the big AI winners and short its losers, told me yesterday as stocks were getting rattled.

Or as my pal, the contrarian’s contrarian Peter Atwater put it in his Financial Insyghts, “Pure fantastical fear.”

Peter, who wrote the books “The Confidence Map” and “Moods of the Markets,” is also fond of saying that “stories follow mood.” And, to that point, he adds that selling like yesterday’s can be “contagious.” If others are now running for the exit, so must I, lest I be eaten alive by headless zombies.”

But Peter takes it one step further, adding this twist…

To support the current selling frenzy, investors have had to embrace wild narratives, just as they did last year as stocks like Nvidia shot to the moon. Somehow, the extreme distance covered must be rationalized. And from the looks of things, the crowd is willing to turn to anything for support.

Like dystopian fiction.

Depending, of course, on which way the market winds are blowing. And as the Citrini report shows, among investors, there is zero conviction about who, what, when, where, and why whatever happens… happens next.

As always, interpret at will.

Feel free to hit the like button and share with your friends. If you haven’t already, become a premium subscriber! After all, the risk is real!

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DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I have no position in any stock mentioned here.

I can be reached at herb@herbgreenberg.com.

Updates on Nordson, Omnicom, Savers Value Village, and the full Red Flag Alerts list are at the bottom of this report.

If you ever wondered how important “headline risk” can be, Blue Owl lays it out in its just-published 10-K with this new disclosure, buried in management’s discussion of the business environment…

An elevated level of headlines about private credit drove higher redemptions in Blue Owl-managed non-traded BDCs, aligning with industry-wide trends, and all investor tender requests for Blue Owl non-traded BDCs were satisfied.

There you have it: The mere mention of “higher redemptions” in the same breath as “an elevated level of headlines” explains why, if you consume financial news, it’s not your imagination that Blue Owl execs have suddenly been everywhere spreading their gospel over the past month or so… including an appearance Friday on CNBC, which I’ll discuss in a moment. And which, in my view, shows how dire the situation is becoming.

The Story Is In the Stock

You can see just how dire by looking at Blue Owl’s share price over the prior year, as concerns over private credit grew…

If I had to pinpoint one day when the company’s damage control seemed to shift into high gear, it was on January 27. That’s when Blue Owl announced that one of its execs would appear at an investment conference.

But perhaps more telling, it was also the day Co-President Craig Packer posted on LinkedIn that he was “thrilled to share” that Moody’s had upgraded some of the company’s debt.

Never mind that Moody’s had issued a press release on that very upgrade a week earlier…

The crisis PR blitz seemed to hit a crescendo a week later, on February 5, when Blue Owl Co-CEO Marc Lipschultz, speaking on the company’s earnings call, now infamously and somewhat dismissively said…

Tech lending has worked, continues to work, and to get very direct, right to your answer, no, we don’t have red flags. In point of fact, we don’t have yellow flags, we actually have largely green flags. The tech portfolio continues to be the most pristine amongst all of our portfolios amongst all of our subsectors.

Investors Anxiety

But even as management went into full crisis mode in late January, investors became increasingly dubious – and the stock continued to fall…

By Thursday, it appeared that management had entirely lost control of the story after the FT ran an article that said the company had permanently halted redemptions by retail investors, which had become a growth driver for the company...

Despite the company’s subsequent efforts to spin the concern as a non-event, economist and strategist Mohamed El-Erian – who once ran bond giant Pimco and knows a thing or two about credit – wondered on social media whether what we were at a “‘canary’ – I’d say owl – “in a coal mine’ moment, similar to August 2007.” That’s when the fall of two credit-centric hedge funds inside Bear Stearns arguably were the first big dominoes to fall at the start of the Great Financial Crisis.

As it so happens, Thursday was also the same day Blue Owl filed its 10-K, with the sentence blaming “higher redemptions” on an “elevated level of headlines.” Of course, in the very next sentence – reinforcing the spin that all was well – it implied that even with those redemptions, more people want in than out…

This slowdown in non-traded BDC capital raising coincided with an acceleration in other fundraising within the private wealth channel, driving a record quarter of private wealth flows for Blue Owl.

All of which gets to the question: Will the owl live? Will the owl die?

What I know is this – I know spin when I see it, and companies don’t go to this level of spin unless they’re a company in crisis.

Trying to Bluff CNBC

That spin was in full display Friday morning when Packer, in full damage control mode, went on CNBC trying to spin the story forward. If nothing else, it proved how well-coached he has been at attempting to duck questions.

My favorite moment was when he was asked specifically about whether Blue Owl, as reported by Bloomberg, had sold some of its assets to an insurance company that Bloomberg said Blue Owl had bought.

He started his response by saying, “Look, I really appreciate the chance to be here….” (Take it from me, as someone who has asked those kinds of questions – on air!: That’s a classic diversion tactic! And always a tell.)

He went on to say that the company doesn’t own an insurance company. “It’s not a subsidiary,” he said, quickly adding that he wasn’t at liberty to say who bought the assets.

But it’s not what he said…

It’s what he didn’t say, but could have said: That the company in question is Kuvare Asset Management, which Blue Owl bought for $750 million in 2024. At the same time, the company bought $250 million in preferred stock of Kuvare UK Holdings, which gives it indirect ownership of Kuvare’s other business – insurance.

‘It’s Not Key’

Yet when pushed by CNBC’s David Faber if the information reported by Bloomberg was “incorrect,” Packer started to say, “It’s not…”

My pal Jim Cramer then interjected, under his breath, “It’s key.”

Packer then said, almost matter-of-factly, “It’s not key.” He went on to explain that “the assets were sold to four institutions, they all bought the same, at the same time, at the same price. The fact that one of the four might be part of our insurance business – how would it undermine the other 75% of the sales?”

What it looked like to me was that he knew he had been backed into a corner and tried to talk his way out. But in doing so, Packer said three things that were red flags:

• First, he wouldn’t say that Bloomberg’s reporting was incorrect. He didn’t because the gist of it wasn’t… and he went on to imply as much. In its report, Bloomberg’s error, which it later corrected, was to say Blue Owl had bought an insurance company, when it invested in an insurance company, while buying the insurance company’s asset manager. It’s impossible to know which part of Kurvare bought the Blue Owl assets. Packer could have cleared up any confusion, but didn’t, it would seem, because (in my view) rather than talking around it, he would have to come right out and concede that this transaction was related. After all, even if the assets in question represent only 25% of those sold, it was a related-party transaction.

• Second, the amount bought by Kurvare wasn’t a mere 25% of the assets that were sold. It’s twenty-five percent! One quarter. That’s a significant amount to sell to a related party.

• Third, he responded to Jim by saying that what Jim thought was “key” wasn’t “key.”

That last point, as nuanced as it may seem, is important because the question of whether Blue Owl sold assets to itself isn’t just key; it is central to the concerns.

Telling Jim that “it’s not key” is akin to telling a journalist or investor that they’re asking the wrong question. In my experience, that usually means it was very much the right question.

Interpret at will.

▶Finally, a few quick updates – and the full red flag alerts list since inception…

• Earlier in the week, I red-flagged industrial super-stock Nordson , pointing out why its high-flying stock is at risk – even a day before its Q1 earnings. You can read it here…

  As for those earnings…

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Typically, I’d prefer not to red-flag a company just before it reports results – by one day, no less – but since this one was in the works, I figured… better now than never.

In this case, as I mentioned in last week’s Wrap, among the companies I’ve been doing some work on is Nordson , which I described as an Ingersoll Rand wannabe.

That’s why, if the above “false narrative” headline looks familiar, it’s the same one I used with Ingersoll Rand. Not only are both rollups, but while Ingersoll Rand’s revenues are nearly triple Nordson’s, their narratives are from the same playbook – both calling themselves “growth compounders.”

Unlike Ingersoll Rand, however, which calls itself “a premier growth compounder,” the tagline “growth compounder” has only been a prominent part of Nordson’s investor pitch for a little over a year. It’s now mentioned on most earnings calls and shows up one way or another in every earnings presentation…

But… is it really?

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Special thanks to FinTool, Tenzing MEMO, Fiscal.ai, and ManagementTrack, whose tools were used as part of this research.

▶Things don’t matter till they do…

That’s especially true with the most dopamine-driven gamification of the stock market ever, which has put a new twist on the old saw of what it means to “play the market.”

Even so, we still get glimmers of the law of gravity whenever a hot air balloon pops. And they do pop, like Hims & Hers , which tumbled roughly 30% this past week and around 75% from its 52-week high – and a full round trip from when I red-flagged it, as reality caught up with the fantasy that the company devised a drug to make you skinny…

Watching the stock rise 333% was no fun, especially when the real story was there for all to see: that without its allegedly illegal compounded versions of GLP-1s, Hims’ core business was getting clobbered. The government’s rollout of its own online RX portal, which sells GLP-1s, in turn led to a regulatory assault on HIMS and sped up the inevitable. (Side note: That last part gets lumped into the bucket of the new wild card to any investment thesis, long or short, of the government taking a stake in companies and industries. In this case, it’s the reverse of what happened to MP Materials after it was red-flagged here.)

What happens next with Hims? If you missed it, I took a stab at going through some of the options in my take…

If nothing else, it’s living proof that things don’t matter till they do!

But wait, there’s more. Seems Hims’ big compounding partner has a few headaches of its own. You can read about that here.

▶Speaking speculating… If you didn’t catch my report on Strategy’s latest efforts at trying to control the narrative – this time with a so-called “digital credit” yielding 11.25% – which is being pitched as being the next best thing to safe – you can read it here…

The reality is very simple, as I wrote, regarding what company founder Michael Saylor was saying…

Saylor’s approach is either brilliant or brilliantly devious or deviously deceptive, depending on which side of the bitcoin and more specifically – Strategy – divide you’re on.

Let’s just say: Based on my interpretation of management’s comments, which I provide in the report, I’m on the side that says: Run for the hills.

In the meantime, the security in question – dubbed, Stretch – trades enormous volumes, proving once again: Things don’t matter till they do.

▶It doesn’t always happen this way… But I’ll take it when it does. In last week’s Wrap, I mentioned two companies I was taking a look at: Wingstop and Progress Software . They’re both down around 15% and 17%, respectively, over the past week. Progress was likely down because it has “software” in its name. But Wingstop, which reports earnings on Wednesday, wound up getting a few analyst downgrades.

My reason for mentioning the company was the possible impact of having a large Hispanic demographic and employee base, leading to a possible freeze in some sales over ICE concerns. In an effort to soften the blow, on its last earnings call, management said…

As we look forward, it’s really about broadening the top of the funnel, bringing in more new guests, new guests that maybe look a little bit different than our core, and diversifying the business a bit.

Did they say: Look a little bit different than our core?

Interpret at will.

P.S.: Over the past two quarters, the company has mentioned costs associated with installing a new ERP computer system. I’ve yet to hear any company say its new ERP installation was done on time and at the cost they expected. And, if nothing else, it has been the perfect cover for other things gone bad. But as we know, and repeat after me: Things don’t matter till they do.

▶Moving on, bitten by a Shark, cut down by a Ninja… When I red-flagged SharkNinja last October, it admittedly was largely (but not entirely) based on the most challenging of all red flags: The ties that bind, in this case, related parties with the company’s former Chinese parent. Yowza, shares are up 54% since then. (Better than the 338% gain in Hims, before it round-tripped!)

But still, there’s no getting around that related parties are hard to hang any stock-related hat on – let alone one of a hugely successful company that is known for aggressive product innovation, which has helped SharkNinja continue to grab market share. That’s why, in the report, I merely presented a mosaic and said that if this plays out, it might take quarters. Plural.

But the reality is…

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One take-it-to-the-bank rule-of-thumb of investing and Wall Street is that the higher the yield, the higher the risk.

Another is that if it’s too good to be true, it usually is.

Worse, if it’s being pitched as if it’s the next-best thing to risk-free, it usually isn’t.

The wild card is when the pitchman is Michael Saylor of Strategy (née MicroStrategy) , when he’s talking anything bitcoin-related, but especially what he calls “digital credit.”

Never mind that there’s no such thing as digital credit as a security. But that hasn’t stopped Saylor from talking about it nonstop, starting mid-last year, as if digital credit were common knowledge rather than a made-up marketing wrapper used to sell his latest financially engineered concoctions… created for the sole purpose of financing Strategy’s purchase of more bitcoin. “Big innovation,” is the way he has described it. It’s so big that “digital credit” was mentioned a record 48 times during scripted comments by management on the company’s latest earnings call, with 37 mentions – the most ever – in the earnings presentation, including this one…

Like most of Strategy’s earnings and investor calls, this one was part revival meeting, part traveling medicine show, and part Advertising/Marketing 101 – pulled directly from the “tell them what you want them to hear and think” school of salesmanship. (Think Mad Men’s Don Draper turning Kodak’s drab-sounding slide projector “wheel” into a “Carousel” of memories.)

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Saylor’s approach is either brilliant or brilliantly devious or deviously deceptive, depending on which side of the bitcoin and more specifically – Strategy – divide you’re on. Or as the New York Times recently wondered, in an article in which I’m quoted…

I’ll let you debate that question, bitcoin, and all other Strategy matters among yourselves.

What I do know is that if you eliminate the name of the company or the person saying it and just go merely on what has and is being said – especially on this last earnings call – you might consider holding on to your wallet.

Here’s why…

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When I first wrote about Hims in May 2024, my mistake was trying to be rational at a point when the market was about to become irrationally unhinged…

And Hims & Hers was in the right place at the right time with the right loophole allowing it to sell a compounded version of the right drug – GLP-1s, just as they were lifting off the launchpad.

But under the surface, the company’s core business was unwinding. I spelled out the issues in my formal Red Flag Alert in collaboration with my pal Russell Young, who runs his own family office, Decameron Capital. After backing into the numbers and realizing just how bad things without the GLP-1s really were, he had shorted the stock.

Original Short Thesis

Among his reasons, as I wrote…

I followed it up a few months later with “The Weight Loss Illusion”…

Alas, the joke was on me – and to some extent Russell, who shorted more along the way. The stock went on to rise roughly 300%, as retail investors and every “bro” newbie – infatuated with Hims via the easy purchase of ED drugs made them feel like porn stars – climbed aboard what looked to be an erectile rocket.

Round-Tripping

Its stock, as of its close today, has since done a near-complete round-trip from where I started…

Between there and here, an entire community sprang up on Twitter around the stock… reminiscent of the old dot-com stock message boards. Many Hims investors were hanging on for $100… and then – to the moon, Alice!

Except, the underlying business told a very different story…

What was clear is that no matter how the bullish narrative had been spun, this entire story was hanging by the thread of a loophole that allowed Hims for a very brief period to sell compounded versions of the weight-loss drugs.

But Hims didn’t stop there. It started tinkering with those still under-patent drugs, as if patents were meaningless… and as if it were a drug company instead of the online marketer it really is. It even began offering “personalized” treatments, flouting FDA rules.

The company’s hubris continued even as recently as last week, when Hims had the gall to roll out its own version of Wegovy’s weight loss pill. And not just a copycat pill, but one, as the company touted in a press release, with “the same active ingredients as Wegovy,” Novo Nordisk’s GLP-1 pill for an introductory price of $49. (That’s $100 less than Novo Nordisk’s price.)

Two days later, the FDA came out swinging, saying – in effect – you can’t do that, while the Department of Human Services said it was referring the matter to the DOJ.

‘Illegal Conduct’

Then, today, Novo Nordisk said it had filed a suit “to stop Hims’ illegal conduct.” It further said it “is asking the court to permanently ban Hims from selling unapproved, compounded drugs that infringe our patents, and is seeking to recover damages.”

Why Novo Nordisk waited until now to do this – and not a year ago – is beyond boggling.

Maybe it was waiting for the government to launch its own online pharmacy, which happened last week, where it sells Novo Nordisk’s GLP-1s for the same price as Hims.

What happens next?

Before I go there, yet another shout-out to Paul Cerro of Cedar Grove Capital Management, who is the only analyst to publicly nail this – via every twist-and-turn – for a bit more than a year. What gave him credibility with me: When he first messaged me after my initial reports, he was long the stock. That gave me pause, because he used to work at Hims competitor, Ro, which is private. In other words, he knows this business from the inside. But then… as things started getting dicey, he not only sold his Hims stock but went short… all of which he details in his report, “A Bridge Too Far.”

But here’s the thing, Paul by nature is not a short-seller! His Hims work provides not just a lesson in flexibility (which is not easy in something as ego-driven as investing) but also explains in real time – in the face of social media trolling all along the way – why Hims was headed for serious trouble.

Meanwhile… What Next?

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▶ Heads up: Life got in the way this week with an unexpected family medical emergency taking priority. As a result, this has been a somewhat clipped week for me. Rather than go into depth on any one thing this week, let me clue you in to what I’ve been working on and/or am watching... with a few other tidbits thrown in.

▶Before I do, some quick housekeeping: Premium subs can now get a full Red Flag Alerts List of my ideas since inception, along with the current price, lows since coverage started, and, for those interested, short alpha (vs. the S&P 500). You can see the full list here. I’m also including a Red Flag Alerts List button in the navigation bar at the top of herbgreenberg.com for easy, anytime access. Prices update every 20 minutes during U.S. market hours.

For what it’s worth: This list is raw, with no pre-set cap that would otherwise enhance performance.

▶Now, for what I’m working on…

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Or to be more precise, he said…

Tech lending has worked, continues to work, and to get very direct, right to your answer, no, we don't have red flags. In point of fact, we don't have yellow flags, we actually have largely green flags. The tech portfolio continues to be the most pristine amongst all of our portfolios amongst all of our subsectors.

Blue Owl is an alternative lender that has become a major player in the private credit markets, which have been the leading drivers of financing the AI infrastructure boom.

Based on its stock, which slipped another 5% today – pushing it down more than 50% over the past year on snowballing AI/credit concerns – investors weren’t buying it….

This may be one reason why: What he said is exactly what the telecom companies were saying a quarter of a century ago on spiraling credit concerns, just before they imploded.

Not that he’s not speaking the truth. Then again, what else would you expect him to say?

It’s like the telecom guys…

As I wrote in my “Why Coreweave Is So Important to Watch” report from September, even as things were starting to unwind in late 2000, management of the telecom companies was telling investors everything was fine. At Level 3, CEO Jim Crow went so far as to write a letter to shareholders, saying...

We continue to believe that we have the right operation, financial and technical plans to capitalize on one of the great opportunities in business today. We believe that we have built the most advanced communications network in the world and, more importantly, one that continues to advance as technology advances.

And in April 2001, with its stock a fraction of where it had been at the peak a year earlier, Global Crossing’s management had the gall to write in its 2000 annual report how in “less than four years since our inception” it became “one of the youngest companies to have its stock traded on the New York Stock Exchange.” The company didn’t stop there, adding...

Global Crossing occupies a unique position as the first telecom company to independently finance the construction of a seamless, global fiber-optic network. We offer services over this state-of-the-art network to global enterprises that demand global connectivity. Quite simply, we know how big business does business... We believe that we have created one of the first companies that will lead the digital global economy in the 21st century.

Management went on to boast about Global Crossing’s “strong” liquidity.

Less than a year later, the company filed for bankruptcy... and Level 3 struggled until it eventually was sold.

Will history rhyme? Repeat itself? Or none of the above?

As always, interpret at will.

DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I don’t own any stock mentioned in this report.

Feel free to contact me at herb@herbgreenberg.com