The stock price of a waste management company in Brazil has risen sharply, making its founder one of the billionaires in South America. In 2023, the company's overall sales volume of 18,000 kiloliters, +28.10% year-on-year, significant growth. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

The stock price of Ambipar Participacoes e Empreendimentos SA has surged more than 930% since hitting a historic low in May. This strong rise has left traders puzzled as they see no fundamental reason behind it.

(Source: Bloomberg)

Some people point out that the company's founder, Tercio Borlenghi Junior, and Trustee DTVM recently bought stocks with the latter currently holding 15% of the shares. The buying pressure may further exacerbate the bearish squeeze of the stock and thus expand the rise.

Whatever the reason, this hot trend has made Borlenghi Junior very rich, at least on paper. The company's market cap of 13.9 billion reais values his 73% stake at 10.1 billion reais, or $1.8 billion. The 54-year-old executive founded the company in 1995.

According to an anonymous source, veteran Brazilian investor Nelson Tanure has also been buying Ambipar's shares through Trustee DTVM.

Data compiled by Bloomberg shows that most of the stock's trading in recent months has been conducted through midsize loan provider Banco Master. The source added that Tanure, known for investing in distressed assets, recently partnered with some of Banco Master's major shareholders for business dealings.

Ambipar CFO Joao Arruda said in an interview that Borlenghi Junior "has no intention to privatize the company." Both the company and Banco Master declined to comment further. Trustee did not respond to comment requests.

Ambipar's business spans 39 countries, and the company is actively reducing its debt burden while announcing a share buyback plan. Some analysts point out that the plan supports bullish sentiment. Arruda stated that the company is confident in achieving its target debt/EBITDA ratio of 2.5 times by mid-2025 faster.

According to the August 8 earnings report, the second-quarter consolidated leverage ratio was 2.82 times net debt/annualized EBITDA, lower than the previous quarter's 3.10 times.

"We are saying goodbye to that buying frenzy," Arruda said, referring to the more than 50 merger and acquisition deals the company has completed since 2020. He added that Ambipar expects to achieve sustained organic growth in the future, which will bring higher profit margins and profits.

However, this rise has already begun to cause concern.

XP analyst Gilberto Coelho said in a live broadcast on Friday: "This is a very unusual move. This is starting to worry people."

The stock's rapid rise has left analysts' target prices far behind. According to data compiled by Bloomberg, the stock is trading at 82.99 reais per share, far above the 12-month target price of 22.72 reais. Ambipar has five buy recommendations and one hold recommendation.

Guide Investimentos analyst Mateus Haag said that the stock's short position has been declining, which may further indicate a weakening of the rise. If the stock continues to rise, shorts borrowing the stock and betting on a price drop may be squeezed. Investors will then need to buy the stock quickly to close out and limit losses.

Earlier this week, Ambipar's stock began to correct, falling 36% on Tuesday and Wednesday combined. But it rebounded 19% on Thursday.

Mateus Haag, the Guide Investimentos analyst, said: "There is no positive driving force to prove the rationality of the stock price rise, but only speculation. In the coming months, the stock's decline is likely to be as big as the rise."