A bidding war may erupt to buy the high-bandwidth licenses owned by upstart wireless operator Straight Path Communications. But such a sale won’t bring in anywhere near what investors expect, a hedge fund that has shorted the company’s stock said on Thursday.
Shares of Straight Path dropped as much as 12% after the report from Kerrisdale Capital, a New York City-based fund that shorts stocks, or bets that prices will fall. The stock closed down 6% to $38.27.
“Straight Path’s spectrum is worth far less than the company’s current half-billion-dollar market cap,” Kerrisdale noted in a 12-page report.
Get Data Sheet, Fortune’s technology newsletter.
Reviewing a deal Verizon (vz) struck with Carl Icahn’s XO Communications last year for similar airwave licenses, Kerrisdale estimates that the Straight Path licenses are worth $260 million at most–and the company must pay 20% of the proceeds to the Federal Communications Commission.
Straight Path, which was spun off from telecom operator IDT (idt) in 2013, owns licenses covering the entire country in the 39 GHz band and additional licenses for the 28 GHz band, both of which are being assigned for upcoming faster 5G wireless networks.
The company dismissed the report as “nothing more than a transparent attempt by a short seller to recoup the money they lost last week after Straight Path Communications’ comprehensive settlement with the FCC,” adding: “It is clear from FCC rulemaking and industry actions that this report has no credibility.”
Straight Path’s stock has been on a tumultuous ride since the company was investigated last year by the FCC for its pre-spin off predecessor having filed misleading information to have its licenses renewed. The company admitted that transmission equipment it had once claimed to have deployed was no longer in use. After hitting a high of $51 last spring, the stock plummeted to under $16 amid the FCC investigation. But after the FCC announced a settlement with Straight Path last week, the stock shot back above $40.
Under the deal announced last week, Straight Path must pay a penalty of $15 million over the next nine months and surrender a portion of its licenses for failing to put the licenses to use as required by federal spectrum rules. The company has one year to either sell all its remaining licenses and pay the government 20% of the sale price, pay another $85 million penalty, or return the licenses to the FCC. Straight Path also announced it had hired investment bank Evercore to conduct a review of “strategic alternatives to maximize shareholder value.”
Wireless carriers are racing to deploy 5G equipment and test new services, but Kerrisdale maintains that plenty of suitable airwave rights are available at low cost.
As an example, the fund cited Verizon’s option in its deal with XO to pay only $200 million for XO’s licenses. While typical airwave licenses used for current cell phone networks sell for $1 or more per megahertz per person over the area that the rights cover, the Verizon deal values the XO rights at about one-tenth of one cent per megahertz per person. That’s also about the price paid when Straight Path sold some rights to wireless operator MetroPCS in 2012, the fund notes.
The high band spectrum is worth so much less given that it is not in serious commercial use yet and the FCC is likely to add many more licenses in those and near-by bands in coming years, Kerrisdale said.
“Multiple carriers will find it easy to acquire very large amounts of spectrum just like Straight Path’s without having to engage with the company at all,” Kerrisdale wrote. “No one is clamoring to scoop up Straight Path’s particular holdings.”
To learn about Qualcomm’s 5G strategy, watch:
After forecasting a sale price of $260 million and given the additional money due to the FCC, Kerrisdale calculated that Straight Path was worth $12.94 to $9.45 per share, or at least 68% less than the stock’s closing price of $40.70 the day before the report came out.