Oppenheimer Disputes Short Report On Pareteum

Oppenheimer Equity Research disputed a short report on Pareteum Corp TEUM that accused the company of touting contracts with dubious startups.

Pareteum shares were soaring Monday after the short report caused it to drop last week.

The stock lost nearly a quarter of its value Friday after short seller Aurelius Value alleged management has ties to previous frauds, and claimed the New York-based company is boosting its backlog numbers with contracts with companies that may not be able to pay.

The Analyst

Timothy Horan reiterated an Outperform rating on Pareteum. 

The Thesis

Oppenheimer conducted “extensive due diligence” prior to initiating coverage of Pareteum six weeks ago and believes the short report is in error, Horan said in a Monday note. (See his track record here.) 

“Our channel checks give us strong confidence in the integrity and competence of management and the quality and satisfaction of its customer base,” the analyst said. “The company is in rapid growth mode, and we expect over 35 percent per year revenue growth on expanding margins in the next few years.”

The cloud communications company joined the Russell 3000 index over the weekend, which could be driving institutional buying and helping boost the stock, he said. 

Pareteum has revenue under contract approaching $940 million, more than double what it was six months ago, according to Oppenheimer. 

But the short report had alleged that many of the companies accounting for that backlog "appear wholly incapable of paying TEUM anywhere near the large contractual values that TEUM has touted." 

Horan countered that Pareteum’s two largest customers are well-established companies —Vodafone Group PLC VOD and Telenet — and that less than 20 percent of the backlog is from startups.

Price Action

Pareteum shares were trading higher by 17.05 percent to $3.02 at the time of publication Monday. 

Related Links: 

Short Seller Aurelius Value Calls Pareteum 'Uninvestible'

60 Biggest Movers From Friday