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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▶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. 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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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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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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What a great story it was.

And from the “history rhymes” department: It may very well be evolving into one again…

I’m going to keep my focus here very narrow, with a spotlight on Covista Inc. (name changed from Adtalem Global Education), which announces FQ2 earnings tomorrow… zeroing in on a single overlooked risk. (For a deeper dive on the space, check out Brad Safalow at PAA Research, who at that time was an exceptional resource for me – he nailed it. He also was a rarity among analysts, with a willingness to red flag the space... on TV with me, no less. I haven’t talked to him in years, but I see he's still bearish, with Covista in his line of fire. I digress…)

Ghost of DeVry

For those of you who were around for the original for-profit follies, if the name Covista doesn’t ring a bell – let alone roll off the tongue – DeVry surely will. Covista is in large part the remnants of the old DeVry, which had a strong focus on vocational and technical training. It went on to pay $100 million to settle an FTC lawsuit over deceptive advertising.

It’s now a pure-play on healthcare, with schools that offer medical and veterinarian degrees, nursing degrees and mental health-related degrees.

Front-and-center among today’s risks for for-profit colleges are funding cuts tied to the One Big Beautiful Bill Act… which in turn impacts the all-important Title IV funding for higher ed. This has been well-covered in the media and investment world.

My interest in Covista was sparked by discussions with my friend and sometimes collaborator, Katherine Spurlock – a former short analyst and shortseller – who has been focused on education stocks for quite a while. She’s the “friend” I cited in my warning last August of issues at Stride LRN 0.00%↑, which went on to rise for a month or two before imploding. It’s now down around 44% since that first mention – and Katherine still thinks that even here the risk is high.

As it turns out, Katherine is as passionate about Covistaas she is/was about Stride. But not just for the most obvious reasons.

Discounts … and More Discounts

Her concerns can be summed up in the chart below…

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(An audio version of this report, narrated by yours truly, is linked lower in this report for premium subscribers.)

Now that I’ve got your attention, some housekeeping and other tidbits…

▶First, one idea that evolved from last week’s Office Hours was building on something I’ve already been pondering: To host an ideas call that would be limited to, say, a maximum of 10 bona-fide premium subscribers. You bring the ideas. The rules: They need to be stocks to avoid or possible shorts – however you want to define that, with at least $1 billion in market cap and $15 million in average daily volume. You discuss them quickly with a group of nine others on Zoom – opening yourself up to questions. I’ll then do a recap here for premium subscribers, along with an audio version of the meeting. Interested? Let me know. And if you’re wondering, for you introverts or professional investors, who need or prefer to keep a lower profile: while you need to let me know who you are, you can participate without being on camera and without using your name.

▶Second, I have a new Red Flag Alert dropping, hopefully by Monday… since the company reports a few days later. Also, in today’s report I’m adding Shake Shack to the Red Flag Radar. It was a name offered up by a participant during Office Hours. I’m also working on a bunch more. I’ll clue you in next week, assuming I get to them. You never know which will become full-scale alerts!

▶Third, if you missed my report last week on why it appears that Vital Farms has cracked, thanks to a new health-related revelation, you can read it here…

Of course, given the volatility of this market, within days the stock was back up to where it started…

Is that proof they really CAN put Humpty Dumpty together again? Nah, it was just a short squeeze, which by Friday showed the cracks were very much still there.

▶Finally, with AI continuing to be front and center, this Steve Eisman interview of AI gadfly Gary Marcus is worth the listen.

My favorite part…

Everybody’s leaving to start their own startup. Now, think about it: If you were at OpenAI, and they really were going to release AGI next week, would you want to leave just before this cataclysmic event that was going to revolutionize the world and go start a little company that’s going to take, you know, four years with the developer or whatever? Of course, you wouldn’t. You’d want to be there for the magical coronation. So the fact that everybody is leaving tells you that they don’t really have what they think. And then: what else is going on?

What else… indeed!

Moving on… Is Short Selling Dead?

▶Ok, I admit – that was a cheap clickbait headline….

But as a guy who flies red flags, and has been plugged into a good network of short-sellers for decades – some of which is still in-tact – I have a front-row seat to what’s happening. The reality is: Stocks still blow up and there are still plenty of people shorting stocks, with a twist: Just as market structure has changed, so has the nature of short-selling. Michelle Celerier, who is now on Substack writing about billionaires, went through some of this a few months ago in a piece for Institutional Investor.

Enter Adam Taggart’s interview this past week with activist shortseller Carson Block of Muddy Waters Research.

I’ve known Carson for years, and very briefly tied up with him a few years ago to do my poorly-timed, failed foray into activist short-selling – the one where I pulled the plug before even really getting started. A good thing, too!

Carson’s view is that the world of short-selling as we knew it has pretty much disappeared… as have many short-sellers. But as the hundreds (and growing) number of premium subscribers to my Red Flag Alerts can attest, many of whom I’m sure are looking for shorts, it’s hardly dead. Or as he explains…

You know, like it’s not a pre GFC [Great Financial Crash] market anymore. You just don’t have the frequency of corrections and the duration of corrections that you used to have.

And it sounds like that because there’s several things that are going on. I don’t know if we can call them a natural or not, but they are trends that weren’t there, let’s say 20 years ago, that have a strong bias to keeping the market supported here.

Like, I would say, the merger of gaming and investing, with the broad, seemingly sustained push from retail – not to mention that wild South Korean influence, but I digress…

Carson goes on to explain…

Short selling traditionally has been this discipline where you go out there and you say, ‘I want to find the most screwed up companies.’ Now, when you get those massive disconnections, it’s almost always because the company is actively doing something to cause that. They’re hiding the ball, they’re misleading investors, they’re doing things to manipulate the perception of the company.

And, arguably, I would say, in this Golden Age of Grift, they’re getting a free pass… and getting more emboldened, leading to what likely will be more fraud, more manipulation and much of it, hiding in the open for all to see. And pretend not to, while the party rages on…

Which is why “in this environment,” Carson continues, “trying to identify those shorts… is a bad idea.”

What’s more, other than the kinds of names activists chase, Carson believes for those who want to short it’s best to stick with “the mediocre companies that are kind of just sleepwalking through things,” where “you’re not finding anything revelatory, you’re not really finding things that the world doesn’t know, you’re just looking for those who are lagging the average…”

Hard for me to disagree, since finding the laggards is the main concept behind Red Flag Alerts. The more boring, the better! (Not that I can’t help myself from touching the wet paint every now and then – it’s in the DNA.) Oh, and by the way, some of those boring companies can blow up, too. Exhibit No. 1 is Erie Indemnity , which is down 45% since it was first mentioned here.

There’s obviously much more to the interview, including nuance I only touched on. Best line, in my opinion…

You know, one of the best and truest things I’ve heard said about investing and maybe just life in general – but especially the investing industry – is that when you speak with them, pessimists sound smarter than optimists. Optimists live in bigger houses.

Ain’t that the truth.

Special thanks to FinTool ,Tenzing MEMO, Fiscal.ai and ManagementTrack, whose tools played a role in researching this report.

Why Shake Shack Hits the Red Flag Radar

▶I hadn’t given much thought to Shake Shack for quite a few years…

Then, during Office Hours last week, one subscriber, a professional investor I happen to know, mentioned why he was short the Shack. (And short, I should add, as a long-term trade that he believes will take time to play out.) This is a guy who also happens to be mostly a growth investor; he also has good instincts on shorting broken growth stories, especially after the stocks have tumbled.

He thinks Shake Shack, one of the former stars of restaurant stocks, is on its way…

And while its shares have been whipsawed since its 2015 IPO, early investors have done well – that is assuming they got out at last July’s all-time highs. And even then, the company has had a good run…

In recent years, the company has had a rough go of it. You can see it in revenue growth, average weekly sales and comp-store sales…

Worse, take a look at total store traffic…

Wall Street, of course, cheered the blips higher as proof that a turnaround under CEO Rob Lynch, who arrived two years ago from Papa John’s , is taking hold. Never mind that any blip higher is against dismal prior results. In other words, they’re little more than easy comps! Ditto for his recent comments at the recent ICR investor conference suggesting that margins will improve and that comp-store sales momentum will continue.

He also said new-store builds will accelerate, which is part of his for there to e 1,500 company-owned stores “over time.” That’s roughly double the number today.

Not Buying It

So, why isn’t my growth stock subscriber buying it?

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Its stock is not being served sunny-side-up this morning, proving, once again – there’s risk in them thar high-flyers – especially if they claim one thing and social media claims something else.

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▶It’s almost always a red flag when a company flips to playing defense…

That’s exactly what’s happening at Veeva Systems , the undisputed king (for now) of customer management software, or CRM, to the parma and life sciences industries.

With revenues surging nearly 1,000% in 10 years to roughly $3 billion, it has built a de facto monopoly with an 80% share of the market. Better yet, its non-GAAP operating margins have lately been steadily hovering in the mid-40s, putting it in the top-tier of software companies…

Trouble is, that’s about to change. If one picture is worth 1,000 words, then this is that picture…

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▶First up, I don’t typically market performance since I don’t offer advice or make recommendations…

As regular readers know, I don’t really care what people do with what I write: Short. Squeeze. Sell. Buy. Hold. Avoid. Your call! The goal of Red Flag Alerts is to find stocks that will lag the market over an extended period. So, for fun (and out of curiosity) I asked my friends at Kailash Concepts, who are quant-based, if they would rev up their computers to calculate short alpha on my formal “alerts”.

While these numbers admittedly can be sliced and diced using various data points and benchmarks, Kailash’s basic analysis of the 46 names since inception in May 2023 versus the S&P 500 over one month, six months and one year show’s a 70% win rate. For more info, please contact me.

The full updated and ongoing list – plus the entire spreadsheet with details of the above – is available to Red Flag Alerts Pro Subscribers. For more info on invitation-only Red Flag Alerts Pro, which includes direct access, please contact me.

▶And this reminder: Rates for new premium subscribers will be rising January 15. Existing subscribers are grandfathered in. For the premium tier, I’m currently testing a private group “chat” on Substack with paid subs… and will soon hold another group office hours – this time with an effort for direct conversation. Also for paid, I’ll soon be testing an audio version of my reports. (Had to get my voice back to normal after this “thing that’s going around” before I could start. Almost there!)

▶Moving on, if you missed it: Earlier this week I published an update on Vital Farms , with a focus on egg pricing.

Since then, prices have continued to fall, with pricing front-and-center on the Cal-Maine call the past week. As Cal-Maine clearly pointed out, lower egg prices led to lower profits and lower margins… and even losses. For perspective, check out this annual chart of its gross margin vs. wholesale egg prices as of the end of its last fiscal year, in May 2025…

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Getting back to biz (and post-flu or whatever the heck that mind-fogging respiratory thing going around is)…

First, just before the break I published a Red Flag Alert on Ingersoll Rand $IR…

And after that, my year ender…

Obviously new alerts are in the works. And if you missed it, I’ve done a soft launch on my Red Flag Alerts Pro…

And for new subs after January 15, my prices will be rising. More on both shortly. Now onto the show…

Shell Game

After rising roughly 70% at one point since I started coverage, Vital Farms is finally back to below or roughly at the price when I first wrote “The Shell Game” in September 2024, depending on the day…

The reason? Depends on which narrative you want to believe…

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I first mentioned in late August that I was starting to take a look at Ingersoll Rand . As I wrote at the time, reflecting what many of you may think when you hear the name…

I hadn’t thought about Ingersoll Rand in years until a friend recently mentioned it. With the perception of big, boring and off most everybody’s radar – and way out of the headlines – it very well may be perfect for those looking for shorts that are not likely to kill their portfolios. Plus, with a $32 billion market cap, and enormous daily volume, it’s highly liquid. The appeal for longs is that Ingersoll Rand is no longer just an old-line manufacturer of air compressors.

Instead, it’s trying to become a competitor to the likes of Danaher and Thermo Fisher in equipment used in biopharma and biologic production. To get there, and as it reconstitutes itself, it has become a rollup. And based on organic growth, not a necessarily good one on that.

I have more work to do to see if I go the distance, so consider this a head’s up.

I’ve gone the distance and… oh, my! What a Wall Street classic. And at an absurdly high multiple, no less.

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Special thanks to FinTool ,Tenzing MEMO and Fiscal.ai, whose tools played a role in researching this report.

Beyond a brief preview, this report is exclusively for premium subscribers. I don’t do Black Friday or Cyber Monday specials. MY PRICES ARE RISING SOON. If you’re not yet a premium subscriber to Red Flag Alerts, becoming one is easy. Simply click here…

You’ve not doubt heard of DraftKings . And if you’re into sports gaming, FanDuel, which is owned by Flutter .

But what you haven’t heard of, in all likelihood – unless you read my red flag quickie on Thanksgiving Day– is Super Group Limited , a member of the SPAC class of 2022. With headquarters and its auditors in London, its biggest operations in South Africa, Canada and the Europe (most of which are in the U.K.) – and domiciled in Guernsey – Super Group has easily slipped through the cracks of coverage.

As I wrote when I first mentioned company, the Super Group story – as I see it – it’s quite a mosaic.

Based entirely on public filings that are as easy to untangle as wet yarn that has been tied into a triple knot, there are so many tentacles and moving parts – including dubious and downright seemingly secretive related-party dealings – that it’s hard to pick out just one thing to focus on.

To say the whole thing is super complex is best illustrated by this diagram of its organizational structure from the company’s 20-Fs……

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To my U.S. subscribers, Happy Thanksgiving. But the world doesn’t stop, and some things simply can’t wait…

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This is not the time to ignore red flags.

If you haven’t already, join the large and growing list – portfolio managers, analysts, auditors, attorneys and even a few regulators – who 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, with the goal of avoiding 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…! Subscribe now!

For institutional pricing, contact me at herb@herbgreenberg.com.

A few quickies…

• Was this SharkNinja’s response to my report?

• Wait’ll you see what UPS has done to raise even more cash!

• How Paycom is seizing the moment.

1. SharkNinja’s Response to My Report?

After a brief “we’ll show him” rally following my original report, SharkNinja’s $SN shares have retreated pretty much back to where they were when I first red-flagged the company a mere two weeks ago. (Seems like an eternity in the latest incarnation of Wall Street years.)

But there’s something I totally missed in my update…

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This is not the time to ignore red flags.

Join the large and growing list – portfolio managers, analysts, auditors, attorneys and even a few regulators – who 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, with the goal of avoiding 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…! Subscribe now!

For institutional pricing, contact me at herb@herbgreenberg.com.

If nothing else today, the action in CoreWeave’s stock showed just how little tolerance there is for anything but perfection from the highest of high-flyers.

With CoreWeave $CRWV, it was management’s comment on its earnings call Monday that there had been an unexpected delay in a third-party datacenter coming on stream, which would impact Q4 results. That, of course, was on the heels of the company’s termination of its merger with Core Scientific.

But should it have really been a stock-spattering surprise?

Connecting a few dots, and at risk of confusing one Core with the other, you tell me…

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This is not the time to ignore red flags.

Join the large and growing list – portfolio managers, analysts, auditors, attorneys and private investors – who 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, with the goal of avoiding 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…! Subscribe now!

For institutional pricing, contact me at herb@herbgreenberg.com.

▶Lots to get to, including updates on SharkNinja, Paycom, Genpact and UPS, but first…

1. SharkNinja – Slicing and Dicing

Quite a quarter for SharkNinja , which not only beat expectations but raised them. Not a surprise…

The day before the company reported, an analyst who follows the company and sees “asymmetric upside” to SharkNinja’s wrote…

We believe a recent news anchor’s negative report is misguided and expect management to address on the earnings call.

News anchor? That’s quite a promotion, but to set the record straight: I’m not and never was a news anchor, but that’s okay… I’ve been called worse. However, misguided? That’s okay, too, because the bottom line of that report and almost all I write is to “interpret at will.” That goes for what I’m writing today!

As it turns out, management didn’t address anything in the report, which you can read here…

What they did say – no, make that stress – was how much better they believe SharkNinja is than any of its competitors. CEO Mark Barrocas couldn’t have been any more effusive and explicit when he said…

We’ve continued delivering disruptive innovation at breakneck speed, and we’ve done it all with best-in-class profitability and impressive execution. In short, SharkNinja has been exemplary.

He went on to call the company “a true outlier” that has “steadily and meaningfully taken market share across categories and geographies.”

Outliers vs. OUTLIERS

The thing is, there are outliers and there are outliers.

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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. Join them here and start flying your own red flags, with the goal of avoiding the laggards and losers... because lurking under the cover of this market’s euphoria are the frauds and failures. When the tide goes out…!

For enterprise pricing and invoicing, shoot me an email at herb@herbgreenberg.com.

Sometimes it’s best to just state the facts and let them speak for themselves...

That’s how I felt after trying to untangle SharkNinja , which by all standards has been nothing short of an exceptional investment... rising more than 180% post-IPO to its highs. The stock has since come under pressure, largely the result of concerns over tariffs.

That may very well be a convenient excuse when the company reports earnings next week…

But under the surface, with revenue growth having sharply decelerated, there could be bigger issues that quite possibly play out in coming quarters. And while they’re not yet something investors appear to know or care about, they bear watching, if for no other reason: SharkNinja is eerily similar – almost a direct overlay – to the convoluted case of Michael Kors, which has since morphed into Capri Holdings.

Ties that Bind

I wrote quite a bit about Kors at the time. Like SharkNinja, it had been a hot stock. And like SharkNinja, it had roots in Hong Kong – in its case exceedingly close ties to an entity known as Far East Holdings, which was controlled by billionaire Silas Chou. SharkNinja, meanwhile, was spun out of JS Global Lifestyle Co. Ltd., controlled by Xuning Wang.

And in both cases, with so many business dealings within a complex web of related entities, it’s hard to know what’s really going on, let alone keeping them straight.

That coziness helped Kors report outsized and stable gross margins relative to its peers... until something had to give. In the case of Kors, the related-party relationships appear to have been serving as a convenient off-balance sheet place to store excess inventory. That, in turn, seems to have helped Kors keep its margins artificially high... that is, until sales slowed and the related parties couldn’t hold any more inventory. That forced Kors to start selling its clothing though discounters... leading to a collapse in margins.

Magic with Margins

Enter SharkNinja, where gross margins are impressively higher than peers, making them a critically important part of the story. Actually, they are the story, and there’s zero room for error…

Don’t take it from me. Here’s the way Interim CFO Adam Quigley put it at an investment conference in September...

I’ve been at SharkNinja almost 11 years now and gross margin focus has been a cornerstone of everything that I’ve done. It’s a cornerstone of everything we do within the company, it is the lifeblood and that enables us to launch in new categories, launch in new geographies, fund the media, fund the R&D. And so, gross margin is the core of everything we do, right?

And...

And so with gross margin so entrenched in what the company does and the lifeblood of what we do, it’s our core KPI.

But it’s not just what Quigley said, it’s what SharkNinja says in its filings...

We view our gross margin as a competitive advantage providing us with significant flexibility over how much we invest in our R&D, selling and marketing and other growth-oriented investments.

In my experience, when one metric is so important and the confidence revolving around it is so high, there’s reason for investors to wonder... Why?

Connecting the Dots

I’ll let you connect the dots and reach your own conclusions. It’s really a matter of laying out the facts – all found in public filings and transcripts. In the end, of course,, it’s subject to interpretation. And as much as I compare this to Kors, no two situations are alike. But SharkNinja is every bit as tedious and complex to pull together – footing JS’s press releases and Hong Kong filings with SharkNinja’s U.S. filings, then cross-checking them with filings and transcripts… stumbling on an apparent inconsistency or two along the way. I augmented all of this with backup from multiple standard AI programs, plus a few that are financially focused. As I did all of this, one thing kept going through my mind: 🤯! All of which is a long-winded way of saying: Unless you’ve already tuned this out, or consider this type of detail meaningless in a headline-driven market like this, grab some paper, something to write with, and diagram it out yourself. Or, if you’re too lazy... ask your favorite AI program to do it for you.

But if you’re willing to take the time, and you understand the possible implications of these kinds of related parties, in all likelihood if nothing else you will find an intriguingly fascinating mosaic.

Let’s Get Started...

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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, with the goal of avoiding 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…! Subscribe now!

For institutional pricing, contact me at herb@herbgreenberg.com.

▶If there is one thing driving this AI bubble more than anything else, it’s the way press release printing presses are working overtime...

Or as Martin Peers wrote in The Information yesterday, “The hardest-working people in tech right now must be the OpenAI team responsible for writing press releases.” There are so many press releases, it’s hard to keep up with the hundreds of billions of dollars being committed..

But if you look at what’s really going on, there’s an enormous disconnect between deals and actual construction. And before you start saying, “Well this is all in the future...” – let me stop you right there. That’s the point. As it almost always does, Wall Street is irrationally extrapolating the number of data centers that will supposedly be built even though nobody – and I do mean nobody – can say when today’s contracts will ever be turned into reality.

It’s like a bricks-and-mortar version of vaporware... when stock-goosing press releases touting new products that didn’t even exist would be issued, complete with press and investor events. Some never even got beyond the development stage.

With data centers, the actual numbers tell a very different story from what’s actually happening....

Just the Fact’s Ma’am

Let’s start with the numbers...

Using data from Aterio, which tracks North American real estate developments, supported by satellite images: At the end of August, there were 2,157 data centers announced, with 500 under construction. That’s against a backdrop of 1,857 active datacenters. That’s roughly 600 more announced data centers – and 100 more under construction – compared with the end of May.

Since the first week of October, the numbers are only slightly higher, but the point is obvious: It’s one thing to announce data centers, it’s another to build them. As Aterio has pointed out in citing various setbacks and project withdrawals, such things as zoning approvals and water constraints can delay or cancel projects... and there already are plenty of delays and even some cancellations.

But There’s Something Else

To get an idea of what’s really happening, I would keep an eye on one very under-the-radar company that in theory should be a good leading indicator...

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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, with the goal of avoiding 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…! Subscribe now!

For institutional pricing, contact me at herb@herbgreenberg.com.

▶Just over a year ago I wrote a report headlined, “Levitated by Lunacy”...

It focused on two companies – Erie Indemnity $ERIE and CorVel $CRVL. The stocks of both appeared to be rising sharply for no other reason than they had been touched by the silent hand of momentum-fueled, algorithmic-inspired passive investing... rather than what was going on beneath the surface. Both also were well off the radar, which will always be a magnet for me.

First up, Erie, which is off the radar for good reason: It’s too heavily nuanced for most. But it has been a strong underperformer since I first red-flagged it roughly a year ago...

Not even being added to the S&P 500 could help for more than a few weeks. Since my original report, and several follow-ups. A friend who watches Erie exceedingly closely recently shared his latest internal update with me. In a nutshell, here’s what his work suggests...

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