Declining markets tend to bring on attacks by short-selling specialists, and today that’s what has happened to GDS Holdings (GDS). A company called Blue Orca Capital has published an opinion that GDS Holdings may be guilty of fraud. The specific charge is that the company’s debt load is being used to enrich insiders by acquiring data centers at inflated valuations. There is a related charge that a server facility supposedly 100% owned and 94% operated by GDS may have had empty cabinet space sold by unrelated data center operators.
As with all short-selling attacks, whether the charges are true or not is only a secondary consideration. GDS dropped below its 25- and 50-day moving averages on July 26 and has been trading lower at an accelerating pace. Today’s action actually pulled the stock below its 200-day moving average briefly and selling volume has been huge.
I’ve read the Blue Orca Capital report on GDS Holdings, and the allegations, if true, do amount to fraudulent reporting. But since I have no independent means to verify the charges, I will just react to what the stock is doing, which is falling sharply.
It’s time to sell GDS and take our profits. And if the market eventually decides that the company is blameless and its reporting is accurate, I’ll be happy to consider it for re-inclusion. But for now, you should sell GDS. SELL.