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Why Tucows Inc. Shares Fell 23% in January

Anders Bylund, The Motley Fool

What happened

Shares of internet service provider Tucows (NASDAQ: TCX) fell 22.6% in January 2018, according to data from S&P Global Market Intelligence. A short-seller analyst published a scathing report on the company, leveling many unsavory accusations at Tucows and arguing that the stock should trade 70% lower.

So what

The report from short-seller analyst firm Copperfield Research claims that Tucows' management has been hiding a lawsuit of material importance from its shareholders. The settlement of this suit will supposedly remove 11% of the domain names in Tucows' DNS registry service, with unknown but probably significant effects on top-line revenue. While hiding this important matter from public view, the firm argues, nine company insiders sold a total of $21 million worth of Tucows stock, with a side of questionable accounting behind the company's EBITDA profits.

Flashlight shining close-up on a flop-eared rabbit; Shadow on the wall shows a lion.

Image source: Getty Images.

Now what

Short-seller attacks are nothing new, and the accusations in this report will need to be examined. Tucows is due to report fourth-quarter results next Tuesday, giving management a chance to clear the air around these issues. Until then, bear in mind that short-seller firms like Copperfield Research turn out to be dead wrong in many cases, and have a vested interest in driving share prices lower. Don't do anything rash based on the Copperfield paper, like selling all your Tucows shares in a blind panic.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tucows. The Motley Fool has a disclosure policy.