Citron Research (formerly StockLemon) offers some of the best short-research around. Their latest target is VistaPrint (VPRT). The company offers small biz printing services, and has seen solid growth. That part of the company appears to be on solid footing.

Their “Referral” division, which generates 44% of profits, is where Citron sees problems. It’s currently the target of 7 class-action lawsuits. And similar businesses have  recently attracted the attention of Senator David Rockefeller. CR explains:

The word “referral” sounds innocent enough, but in real terms, as a consumer, when you complete an online purchase, you are shown a button saying something like “Save $10 on your Next Purchase from this Company”.  Beware!  If you click, even accidentally, your full contact info, but worse, your credit card information, is sent on without your permission to a 3rd party company you haven’t given your permission to.  From that point, the debate rages about how many of these charges represent trickery, and how many more are simply fabricated without the consumer’s consent or knowledge.

They then preemptively counter the bull case, and blast Vistapoint’s lofty valuation:

Vistaprint’s cheerleaders will have you believe referral is not a problem because even if it goes away, it only represents a bit more than 5% of revenue last quarter. What they don’t tell you is that with the margin it carries, this type of business, which according to the company’s own disclosures is generated with zero operational costs, represents close to 44% of Vistaprint’s net income.  If you compare the past two quarters you will see that the company is becoming increasingly dependent on that income.  Vistaprint’s already aggressive 36.5 PE balloons to an unsupportable 64.75 for its non-referral business.

Citron Research has a solid track record. VPRT is down about 5% today as of posting, and that’s not likely a coincidence. The last thing a small/mid-cap company wants is coverage from Citron. Their research has infuriated dozens of CEOs, and proved to be very valuable in some cases for those on the short side. You should always assume they’re talking their book, of course. And remember, this market is too bizzarre to short anything unless you’re a pro.

Disclosure: No position in any companies mentioned.
This is NOT investment advice. Always consult an investment professional when making financial decisions.