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Investing.com -- Main Street Capital Corporation (NYSE:MAIN) shares fell 4% following a short report from Jehoshaphat Research. Jehoshaphat alleges that the company has systematically inflated the fair values of its investment portfolio, potentially overstating net asset value (NAV) by approximately 40% and earnings per share (EPS) similarly.
The short-seller’s analysis suggests that the unrealized gains reported by Main Street Capital are concentrated in areas without third-party marks to verify the valuations. The report contrasts the company’s significant unrealized gains with a history of cumulative realized losses, indicating a discrepancy between the performance of exited investments and those still held.
Jehoshaphat Research’s scrutiny extends to Main Street Capital’s relationship with its auditor, which, according to the report, may be too cozy and affecting the auditing process. The research emphasizes the removal of certain audit procedures related to the fair value of Level 3 investments from the company’s 2024 10-K filing, raising concerns over the robustness of the auditing process.
The company’s investment strategy and recent insider stock sales were also highlighted. The report notes that senior leaders at Main Street Capital have shifted from being historical buyers to selling large amounts of stock, suggesting a lack of confidence in the company’s future performance.
The short-seller report further argues that Main Street Capital’s dividend is no longer covered by underlying portfolio cash flows and predicts an impending dividend cut. This is compounded by the company’s exposure to new tariffs, which could exacerbate the portfolio’s performance issues.
Investors reacted to the report by selling off shares, reflecting concerns over the company’s valuation practices and future dividend sustainability. The decline in share price underscores the market’s sensitivity to allegations of accounting irregularities and the importance of transparent and reliable financial reporting.
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