On Monday July 7, Let’s Gowex SA filed for bankruptcy, which is not necessarily a bad thing, because companies which file for bankruptcy generally had a long history of not being profitable and it was not that far from seeing a bankruptcy as the logical outcome. Gowex was different, it traded on the Spanish exchanges and for a time, the stock outperformed. The company is a Spanish wireless network provider across Europe and reporting increasing profits. With every company that outperforms there are analysts looking at why and some wanting to cash on the increasing stock price. The story this time is the analysts asking why? the analysts were short sellers who among their research looked at the revenue by its number of employees whose number showed the business per employee sales were far above the normal or rule of thumb. Either this was the most productive company in terms of revenue per employee or the numbers being reported were wrong. It turned out 90% of revenues were fiction or non cash. The investment company which uncovered this fiction was a short seller which meant it expected the price of the shares to fall and borrows the company’s shares, if the price falls buys it buys in at a lower price. If the shares go higher, the investment company losses money. The shares fell from $26 to $2 Euro.

The important thing about Gowex is who owned the shares, given the short sellers found the financial statements dubious at best. It turns out the founder of the company and partners owned 60% which at one time made among the top 20 wealthiest people in Spain, but at the time of bankruptcy, companies such as JP Morgan Europe Fund, Danske (a Danish firm), Henderson Global (a UK based fund) and Banco Santander owned shares. One would expect the Spanish bank Banco Santander owned some shares because Gowex was likely a client of the firm. However the others all stress on their websites and publications, they are looking for opportunity in the capital markets with their 1000 plus analysts. Did they miss something or did not look? or was the share price too much of a carrot to overlook the standard rule of thumb analysis?

Linking to dividend paying stocks, Gowex did not pay a dividend, very often you can avoid the losses of the market when stocks drop. Shares will go and down, it is a given but there are sets of shares which tend not to fall as much. For most companies which pay a dividend you can reasonably see if they are not going to pay it, for the signs in the economy should be evident. As well most companies which pay a dividend will first cut the dividend rather than not paying anything and as an investor you can see if you wish to hold or fold and try other dividend paying companies.

There are more questions than answers, till the next time – to raising questions