What happened

Shares of restaurant kitchen equipment supplier The Middleby Corporation (NASDAQ:MIDD) are down 8% as of 12:20 p.m. EDT, and for once, the coronavirus doesn't appear to be to blame for this downdraft -- at least not directly.

Instead, it's a short attack.

Cartoon character sliding down a red arrow

Image source: Getty Images.

So what

This morning, short-seller Prescience Point Capital Management issued a report warning of a potential "50% downside" to Middleby stock.  

Middleby provides commercial and industrial cooking equipment to quick- and full-service restaurants, retail outlets, and hotels. As Prescience points out, "[t]his industry has unfortunately been devastated by the COVID-19 pandemic."

Yet the management company says it believes the virus' impact on Middleby "will be much larger than current projections."

Citing the results of "a months-long investigation" into Middleby's finances, Prescience argues that "Middleby had already been struggling before COVID-19 as many of its large restaurant chain customers pushed out [capital expenditures] and delayed projects. For years, Middleby was able to hide deteriorating organic growth with progressively larger but lower quality acquisitions."

But now, the analyst warns that "Middleby's debt-fueled roll-up strategy is set to implode" as its investments in acquiring kitchen equipment makers will fail to pay off in the sudden absence of customer demand.

Now what

How bad could things get? Prescience Point projects as much as an 85% decline in foodservice equipment purchases industrywide. And as one of the largest providers of kitchen equipment, it would seem likely that Middleby would suffer the brunt of this decline in spending -- even more so given that the analyst warns of "a wave of used equipment" hitting the market as Middleby's restaurant customers close their doors "at a record pace" in the recession.

The result is a double whammy for Middleby, as overall spending plummets and what spending there is goes to resales of used equipment, rather than purchases of the new equipment the company manufactures.

Things are looking grim, and Middleby stock investors are nervous.