Why OSI Systems Stock Gained 5% This Week

On the back of news that it had been added to a top picks list by a prominent bank, OSI Systems (NASDAQ: OSIS) had a good week on the stock exchange. Over the period, the security hardware manufacturer share price improved by more than 5%, according to data compiled by S&P Global Market Intelligence.

A positive move followed a negative report

On Wednesday, Bank of America updated its lineup of favorite small-cap stocks, the Endeavor List. The lender swapped out specialty restaurant chain operator Sweetgreen in favor of OSI Systems. At any point, the list consists of 15 to 30 stocks in the category, making it quite the achievement to be named.

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It wasn't immediately apparent why Bank of America deemed the company worthy of inclusion. Regardless, OSI Systems could use some positive news these days.

Last week, short seller Culper Research published a highly critical report on the company. It pointed out the fact that the vast bulk of its recent revenue growth is due to one contract, a deal it says was signed with Mexico's Ministry of Defense in March 2023 to supply over 120 vehicle and cargo-screening systems at 21 border crossings in the country. Culper wrote the following in the report:

Yet our research -- including an extensive review of import authorization records, investigator visits to border crossings, satellite imagery, interviews of former employees, and analysis of local press – suggests that OSI has fallen wildly behind on its obligations, owing to shipping, installation, and potential product-level issues.

OSI Systems has not yet formally replied to those allegations.

Are the allegations well-founded?

Understandably, OSI Systems stock declined notably after the publication of the report. So it seems Bank of America's move is restoring confidence in the stock. Still, the allegations are troubling, and even though Culper as a short seller profited from OSI System's share-price decline, investors should be cautious and perhaps do a deeper dive than they usually do into the company.

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Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.