(Bloomberg) -- WSP Global Inc. shares plunged after Spruce Point Capital Management LLC said it was shorting the Canadian engineering firm’s stock, slapping it with a “strong sell” recommendation.

Spruce Point, a prominent US fund that previously targeted Canadian firms Lightspeed Commerce Inc. and Nuvei Corp., on Wednesday criticized WSP Global’s “opaque financial reporting.” WSP Global didn’t immediately reply to a request for comment.

Wednesday’s share price move erased C$1.54 billion ($1.5 billion) in market capitalization from Montreal-based WSP Global, one of the largest firms in Canada’s industrial sector. The stock was the worst performer in the S&P/TSX Composite Index.

“Cash flow and earnings quality appear to be embellished by aggressive and problematic accounting revisions,” Spruce Point’s report said, adding that the firm believes adjusted margins for earnings before interest, tax, depreciation and amortization are actually declining, instead of increasing. 

The company in late February reported an adjusted ebitda margin of 17.6% for 2023, up from 17.1% a year earlier. Adjusted ebitda rose to C$1.92 billion last year compared with C$1.53 billion in 2022, WSP Global said. 

“WSP is aware of the short-seller report,” Chief Financial Officer Alain Michaud said in an email. “While the report is being reviewed by our team, WSP upholds the highest levels of governance standards, and we take our obligations in this regard seriously.”

Ben Axler, Spruce Point’s founder and chief investment officer, said the stock has earned shareholders a lot of money in the past, but views the outlook as dim.

“There are clear signs here that the business is under stress, and if you look at where the smart money is going, we think it’s selling,” Axler said in an interview with BNN Bloomberg on Wednesday.

Maxim Sytchev, analyst at National Bank of Canada, said his team disagrees with the short seller’s report, stating the bank believes the company’s disclosure is in line with that of industry peers. “We are buyers of the shares on the selloff,” Sytchev said in a note.

WSP Global shares fell as much as 6.9% in Wednesday morning trading, their biggest drop since December 2020, after Spruce Point said it sees a 25% to 50% downside risk for the company’s stock.

(Updates with company and analyst commentary in paragraph eight and nine.)

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