Key Points
Kerrisdale Capital issued a critical report of Aurora Innovation this week.
The short-seller doesn’t believe that the company has a viable business model.
Current shareholders should take the report with a dose of skepticism.
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Pumping the brakes on their investments in Aurora Innovation (NASDAQ: AUR), investors are steering the self-driving car stock out of their portfolios this week after learning of a critical report that questions the company’s prospects.
According to data provided by S&P Global Market Intelligence, shares of Aurora Innovation have plummeted 10.2% from the end of last Friday’s trading session through 12:45 p.m. ET on Thursday.
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The market’s not giving short shrift to this report from a short-seller
Kerrisdale Capital doesn’t wait long into its recently released critical report of Aurora Innovation before dropping the hammer. In the first sentence, the short-seller asserts without equivocation that it expects the company “will never become a viable commercial operation.”
Providing a variety of claims to support its thesis, Kerrisdale Capital suggests that the company’s technology is inadequate to handle the challenges of operating autonomously on both urban and suburban routes. In addition, the investment firm contends that the infrastructure that autonomous vehicles require is too expensive, and it will preclude trucking companies from adopting autonomous vehicles solutions such as those that Aurora Innovation offers.
Summing up its argument succinctly, Kerrisdale Capital states at the end of its report that it doesn’t “think there’s any chance that Aurora’s vision for autonomous trucking will be implemented. There are just too many holes in it.”
Should shareholders keep Aurora Innovation stock parked in their portfolios?
It’s no wonder why some investors have been unnerved this week and chose to click the sell button on Aurora Innovation. But it’s critical to remember that Kerrisdale Capital has a short position in Aurora Innovation. In other words, it profits if Aurora Innovation stock falls; therefore, it’s important to take its critical perspective with a grain — or a heaping tablespoon — of salt.
At this point, it’s unwise to simply sell Aurora Innovation stock because of the critical report. Current shareholders should be mindful of the significant risks with the company, though, and they will certainly want to stay laser-focused to see if any of Kerrisdale Capital’s claims are validated.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
