Buyback Wednesdays -dLocal Responds to Short-Seller Report and Announces a $100 Million Repurchase

Investors that missed an opportunity to invest in companies like Amazon (AMZN), Apple (AAPL), Costco (COST), and Chipotle Mexican Grill (CMG) are always on the lookout for the next Amazon or the next Chipotle. Every once in a while they find a company like MercadoLibre (MELI) that turns out to be the Amazon of Latin America but more often than not, they run into a Jumia Technologies (JMIA) or Potbelly (PBPB). To paraphrase a quote I heard a while ago, “more money has been lost trying to find the next Amazon; than made by investors in Amazon”.

While considering candidates for our Buyback Wednesdays article this week, I came across a $100 million share repurchase announcement by a company called dLocal Limited (DLO). The size of the purchase in relation to the company’s market cap was not significant (2.57% of market cap at announcement) but dLocal appeared to be a fast-growing FinTech company with amazing margins. The company facilitates payments in Latin America and several other countries across the globe. This was beginning to sound like another MercadoLibre or better yet, the “PayPal of Latin America”.

I noticed that the company was headquartered in Montevideo, Uruguay, and reached out to a subscriber from Uruguay who has discussed investment ideas with me several times over email. Despite it being the holiday season, he was kind enough to get back to me promptly and gave me a quick background on the company and more importantly mentioned that the company’s stock had taken a big hit recently after a short-seller report. The buyback announcement also includes the company’s rebuttal to the short-seller report.

I found Muddy Waters’ November 16, 2022 report on dLocal and it turned out to be a fascinating 46 page report. You can download the report here. If you have been following short-sellers like Muddy Waters Research, Hinderburg Research, Citron Research, Jim Chanos and Mark Cohodes, you would realize that Muddy Waters not only has an excellent long-term track record but they also stand out for the quality of their work.

Short-selling is inherently difficult (going against the tide) and while many short-sellers write reports after taking a position in the subject of their reports, it is no different than a long investors talking up their book. Unless done with malicious intent, they serve a useful function in capital markets and are often first to uncover signs of fraud.

Only plus or premium subscribers can access this post. Subscribe today.