Trading in shares of Samsonite were suspended following an accusation made against the largest maker of luggage in the world for questionable business practices, by an investment company.
In Hong Kong, the stock price sank by 10% prior to trading being stopped after it was attacked by the exchange’s short sellers, investors that profit through driving down a share price of a company’s stock.
A new company the is led by Soren Aanddahl a well-known short seller, claimed in one of its reports published on Thursday that the luggage maker has masked a slowdown in growth through borrowing large quantities of money to make acquisitions.
The report said that Samsonite has already announced the search for another acquisitions and the market ought to be skeptical.
The short-seller also has accused Samsonite of using accounting techniques it called questionable to massage its earnings as well as inflate profit margins.
Samsonite is just a mid-level brand that has masqueraded as being a luxury brand, said the investment company.
Trading of Samsonite shares was halted late Thursday in Hong Kong at the company’s request while it prepared a response to the new report.
On Thursday, Samsonite said through a prepared statement that the allegations made by the short-selling company were misleading and one-sided, and accordingly conclusions drawn from the report are not correct.
Samsonite added it would be issuing another response that was more detailed in due course. It also warned shareholders to be cautious when reading the report and that it reserved the right to legal action against the company.
Samsonite also added that its stock would resume trading on Friday in Hong Kong.
A great deal of the criticisms in the report focused on the acquisition strategy of Samsonite that includes a buyout of $1.8 billion of Tumi its American, upscale rival in 2016.
It alleges that Samsonite has used certain techniques in accounting to boost profit margins artificially following that deal, and it believes that the shares of the company are overvalued by more than 44%.
The majority of mainstream analysts look at it differently. Nine out of 15 brokers that cover the stock say Samsonite is a buy.
Analysts are expecting the operating profit at Samsonite to increase by over 20% during its current financial year.