Grifols S.A. (NASDAQ:GRFS), the Barcelona, Spain-based pharmaceutical company, saw its shares plummet by 24% on Tuesday. This marked the company’s most significant single-day drop since its initial public offering.
The cause? A bombshell short report released by Gotham City Research that accused Grifols of serious accounting irregularities, bringing into question its stock value.
Gotham City Research, known for its forensic financial analysis, had been scrutinizing the operations of Grifols SA since last spring. Over nine months, the firm dug deep into the company’s financials, uncovering what they describe as a troublesome “pattern of behavior.”
“We believe shares are uninvestable, likely zero,” the report affirmed.
The Grifols debacle has cast a shadow over the wider Spanish stock market. The company, known for blood-related medicines, significantly underperformed compared to European peers during today’s session.
The iShares MSCI Spain ETF (NYSE:EWP) has seen a decline of 1.9% as of this writing.
Chart 1: Grifols’ Share Price Movement After Gotham City’s Short Report
Grifols Chart Reveals Further Downside Ahead
The Gotham report triggered a significant sell-off in Grifols’ shares as investors grappled with the potential implications.
Tuesday’s downturn marked a significant deviation in Grifols’ share price trajectory, halting the steady upward channel it had maintained since mid-October 2022.
The stock has now dropped to a low not seen since April 2023. Notably, previous dips to similar levels have typically aligned with a deeply oversold condition on the Relative Strength Index (RSI), an indicator that has yet to signal such a state in this instance.
Moving forward, the $6.50 price point stands out as the critical support level to monitor closely.
Gotham’s Allegations
The report accuses Grifols of inflating its EBITDA, manipulating debt levels, and engaging in tunneling transactions — a process where assets and profits are siphoned out for the benefit of insiders, at the expense of the company and its shareholders.
They allege that Grifols, together with related family entities like Scranton Enterprises NV, has been involved in undisclosed loans and share pledges, which have been used to paint a misleadingly robust picture of the company’s leverage,…
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