Image source: National Beverage Corp.

What happened

Shares of National Beverage Corp. (FIZZ 0.46%), the parent company of LaCroix, tumbled on Wednesday following a report from a short-seller accusing the company of accounting fraud. At 2:45 p.m. EDT, the stock was down about 11%.

So what

Shares of National Beverage have soared over the past few years, with the runaway success of LaCroix, a decades-old brand of sparkling water, driving the company's results.

FIZZ Chart

FIZZ data by YCharts.

Glaucus Research Group published a report on Wednesday which raised questions about National Beverage. Glaucus accused the company of manipulating its earnings, pointing out that National Beverage manages lower gross margin than its larger peers but still produces a double-digit operating margin. In Glaucus' own words:

How does a small, regional beverage manufacturer which sells discounted brands report such low operating expenses relative to its peers? In our opinion, the answer is simple: either FIZZ has revolutionized the beverage business or it is falsifying its reported financial performance. We believe it's the latter.

Glaucus also detailed the company's use of off-balance sheet entities and accused CEO Nick Caporella of giving an undisclosed stock gift to an employee. Glaucus claims to have found two instances where documents had been falsified or where facts had been fudged in a litigation, suggesting that it demonstrates a culture of unethical behavior.

A 65% decline in the stock would be justified, according to Glaucus. Glaucus disclosed that it had a short interest in the stock and would realize significant gains if its predictions came to pass.

Now what

National Beverage has not yet responded to the allegations. While Glaucus provided 51 pages of evidence to back up its accusations, investors should always do their own research. The market has reacted negatively to the charges, but only time will tell whether they hold water.