Why RCAT Stock Is Tumbling Today

The shares of Red Cat (RCAT) are sinking 7% today after Kerrisdale Capital announced that it was shorting the shares and made a number of allegations against RCAT.

The company develops drones and markets hardware and software used by drones.

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Kerrisdale’s Allegations

According to Kerrisdale, RCAT tremendously exaggerated the value of its deal with the U.S. Army related to the military’s short-range reconnaissance (SRR) drone. Specifically, the tech firm reported that the agreement was worth almost $400 million over five years, while Army documents show that the budget for its SRR drone is just slightly below $25 million for 2025. Kerrisdale added that the branch’s spending on drones is not expected to jump in the near term. What’s more, the Army may select new contractors for the program every two to three years, Kerrisdale reported.

Additionally, Red Cat has asserted for three years that it was poised to sell drones to America’s NATO allies, but no such deals appear to be close to occurring, Kerrisdale charged.

Also noteworthy is that, in order to meet its 2025 guidance, Red Cat would have to produce three new drones three times faster than its best-selling drone of all time, according to the short seller.

The Price Action of RCAT Stock

In the last month, RCAT has climbed 11%, while it has surged 230% in the last three months.

While we acknowledge the potential of RCAT, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RCAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.