Delcath Systems, Inc. (NASDAQ: DCTH) has had a rough time in the market as of late. It all started when a firm that calls itself a research firm by the name of White Diamond Research published an article on Seeking Alpha last week. However, while they say they are a research firm, what they’re really doing is shorting the stock, which has led to a massive short attack that is holding the stock down. Today, we’ll talk about what it means to short a stock, what the deal is with White Diamond Research, and why DCTH deserves your attention.
What Does It Mean To Short A Stock
Before we get into this, I will first say that shorting a stock, in the view of many, is an unethical practice. Ultimately, those who short stocks are essentially stealing hard earned gains from those who truly believe in the company that is being shorted. With that said, here’s how it works.
When someone shorts a stock, what they are really doing is making a bet that the value of the stock is going to fall, while pushing the value of the stock down themselves. Allow me to explain. It all starts when someone who wants to short a stock borrows shares from active investor accounts. Once the shares are borrowed from these accounts, they are sold in the open market. Of course, when selling happens, the price of the stock falls. Then the person who shorted the stock buys the shares back at the lower market value and gives them back to those they borrowed the shares from. Because it was sold high in the beginning, and purchased cheap in the end, the spread between the two becomes the profit.
The White Diamond Research Attack On DCTH Was Unjust
Now that you know what it means to short a stock, we can get into the real story here. As mentioned above, Delcath Systems was recently the victim of an attack on their stock. The attack was waged by a firm that calls themselves a research firm, known as White Diamond Research.
First, White Diamond Research borrowed shares from active DCTH investors and sold them. Then, they wrote an article that was featured on Seeking Alpha. Of course, this article wasn’t good news. Ultimately, White Diamond Research accused Delcath Systems of death spiral financing, paying for pump and dump promotions, and more.
Of course, when investors read the article, many of them started to sell their shares. Ultimately, this led to massive declines in the value of the stock, pushing it from around $0.20 per share to around $0.14 per share. However, had those investors read the disclaimer on the article in question, they would have seen that White Diamond Research didn’t have the best interest of investors in mind here.
In fact, the disclaimer read “I am/we are short DCTH”. This disclaimer explains a lot. Considering that White Diamond Research blatantly lied about pump and dump promotions (as can be seen in a recent edit to their article made by Seeking Alpha staff), they had no proof that this was actually happening, nor did they reach out to the news outlets that they accused of being paid for promotion. This was just one of many issues found in the article.
Why DCTH Deserves Your Attention
At the end of the day, Delcath Systems is a great company that deserves the attention of investors. Now, the company has made some mistakes in the past, but who hasn’t? The real story here is what they are doing in the future.
DCTH is a company that’s focused in the oncology space. In fact, they have created a system that, through the use of catheters, is able to target specific organs with chemotherapy. The system, known as CHEMOSAT, has been approved in Europe and is in the midst of multiple clinical studies that will likely lead to approval in the United States. With this incredible asset, the stock is undervalued and deserves a second look by those swayed away by White Diamond Research.
What Do You Think?
Where do you think DCTH is headed moving forward? Join the discussion in the comments below!