Straight Path Faces 70% Downside, Kerrisdale Still Says Market Overreacted To FCC Settlement

Short seller Kerrisdale Capital believes the 24 percent jump in Straight Path Communications Inc STRP since the company announced a $15 million settlement with the U.S. Federal Communications Commission (FCC) on January 12 is a result of the market misinterpreting Straight Path’s current position.

Following the big move, Kerrisdale now sees roughly 70 percent downside for Straight Path.

In a new report, Kerrisdale points out that Straight Path must sell its spectrum within the next year or face additional penalties and another potential investigation by the FCC. Therefore, the value of Straight Path’s stock rests solely in the price it will be able to get for its spectrum.

Kerrisdale says Verizon Communications Inc. VZ is buying a similar amount of superior spectrum for only $200 million, implying Straight Path’s spectrum is worth no more than 40 percent of the company’s current market cap.

Finally, Kerrisdale claims that the FCC’s willingness to expand millimeter-wave spectrum supply further devalues Straight Path’s spectrum.

“Kerrisdale believes that Straight Path is worth 70% less than it current market cap given the low value of its portfolio of millimeter-wave spectrum, the large penalties it will have to pay the FCC, and the abundance of competing spectrum,” Kerrisdale said in a press release.

Kerrisdale has held a short position in Straight Path since at least October of 2015. In the time since Kerrisdale’s original Straight Path report, the stock is up 33.4 percent.