Short sellers including Carson Block’s Muddy Waters and others have been circling since last year, and GSX’s latest financial results showed wider-than-expected losses. It faced a new barrage this month, with Grizzly Research issuing a report questioning the number and qualifications of teachers working for the company, and arguing that auditor Deloitte shouldn’t give an opinion on the firm’s annual report.

Listening to Chen, who founded GSX in 2014, you’d never guess his company is one of this year’s worst performers, or that his net worth on Bloomberg’s ranking of the world’s richest people has tumbled almost $13 billion to $3 billion since its January peak.

‘Cherish Trust’

“Life is like a game,” Chen said Thursday during a virtual event held in Beijing, where the company is headquartered. “It has to be fun and we have to win.”

Dressed in a white shirt and black suit, the 49-year-old chief executive officer didn’t discuss the recent stock plunge. Instead, he said his company has to put all its efforts to continuously grow and “cherish trust from students and their parents.”

The company paraded some of its teachers who proclaimed that the bar was “very high” to become an instructor, but Chen didn’t directly take on the short sellers.

“Should we focus on self-criticism or rumors flying around?” he asked. “Undoubtedly, we should focus on self-criticism.”

The event didn’t stanch the slide in GSX shares. Its American depositary receipts fell 9.3% in New York on Thursday, snapping four days of gains.

More Confident

Still, some analysts are growing more confident the stock will recover. Even as it faces increased regulatory risks, companies such as GSX have developed a “significant market” in China as the Covid-19 crisis accelerated demand for online education, according to Tommy Wong, an analyst with China Merchants Securities Co. in Hong Kong.

“GSX has a strong balance sheet to weather potential challenges,” said Wong, who raised his recommendation on the stock Thursday to a buy.

JPMorgan Chase & Co.’s DS Kim also lifted the stock’s rating earlier this month, saying technical selling pressure should subside despite “myriads of uncertainty.”

Short interest, meanwhile, has sunk to 26% of shares outstanding from almost 75% in March, according to IHS Markit Ltd.

Fluctuating Shares

The company’s stock has been on a wild ride since its ADRs began trading in June 2019, soaring even as short sellers called GSX a fraud. In September, the tutoring firm disclosed the U.S. Securities and Exchange Commission was investigating its second-quarter earnings report. The following month, Credit Suisse Group AG — which helped lead the initial public offering — downgraded the shares, citing increased competition and “mistakes” made during the company’s summer promotion. And in November, GSX announced a disappointing sales forecast.

In each instance, the initial plunge was temporary and the stock kept recovering, hitting a peak in January amid a retail trading frenzy that targeted highly shorted names.

It later turned out that Hwang’s Archegos had built a highly leveraged position in GSX and a handful of other companies using swaps provided by banks such as Morgan Stanley, Credit Suisse, Nomura Holdings Inc. and Goldman Sachs Group Inc.

When some of those stocks, including ViacomCBS Inc. and e-cigarette company RLX Technology Inc., started dropping last month, the banks demanded collateral that Hwang couldn’t provide, so they sold giant blocks containing GSX and his other positions. Archegos lost $20 billion in capital in just days and GSX’s ADRs posted a record 52% two-day drop. The slump paused after Chen said he’d spend as much as $50 million of his personal fortune in the coming year to buy shares of his company, but that didn’t last.

‘Sad Story’

“It’s a truly sad story,” Junheng Li, founder and CEO of JL Warren Capital, an equity-research firm focused on Chinese companies, said this month in a Bloomberg Television interview. So many independent researchers have looked at GSX and everyone reached the same conclusion, she said: “The company is mostly fraud.”

In an April 8 report, Grizzly Research concluded that the “mountain of evidence that point to GSX being a fraud is simply overwhelming” and Deloitte would be making “a grave mistake” if it signed off on the company’s 2020 financial results. GSX has been dismissive, saying in a statement the report “contains numerous errors, unsubstantiated statements, and misinterpretation of information.”

A GSX representative didn’t respond to requests for further comment for this story. On Sunday, Beijing’s market regulator fined the tutoring provider and three other peers for pricing violations to attract customers or other businesses, it said.

For his part, Chen said Thursday that he kept telling himself he’s “part of a beautiful life” and “things are so good.”