{ "schemaVersion": "deck-intelligence.v1", "id": "019dd923-622c-750b-8b98-a6a0f8168eeb", "slug": "e4e33ebca0cb", "title": "A.O. Smith Corporation (AOS)", "subtitle": "Ben Axler · 2019-05", "author": "Ben Axler", "date": "2019-05-16 00:00:00", "pageCount": 20, "kind": "activist-deck", "orientation": "landscape", "aspectRatio": 1.3333334, "targetCompany": "A.O. Smith Corporation", "targetTicker": "AOS", "document": { "id": "019dd923-622c-750b-8b98-a6a0f8168eeb", "slug": "e4e33ebca0cb", "title": "A.O. Smith Corporation (AOS)", "rawTitle": "64e7a584e89e5b70eec23d1c aos research thesis 5 16 2019", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "authorDisplay": "Ben Axler", "kind": { "slug": "activist-deck", "label": "Activist deck" }, "sourceType": { "slug": "short_seller", "label": "Short seller" }, "fileName": "2019-05-64e7a584e89e5b70eec23d1c_aos_research_thesis_5-16-2019.pdf", "sourceUrl": null, "sourceDate": "2019-05-16 00:00:00", "presentationDate": "2019-05-16 00:00:00", "ingestedAt": "2026-04-22 21:06:44+00", "status": "ready", "pageCount": 20, "orientation": "landscape", "aspectRatio": 1.3333334, "targetCompany": "A.O. 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The CEO built\nthe rope; you put it around their own neck.", "familyLabel": null, "categoryName": null, "categorySlug": null }, "agent": null, "layer": "document", "agents": null, "matchId": "d9d6e6b1-87d1-4823-9dc9-4797489e0975", "evidence": null, "pageRefs": null, "priority": null, "whenToUse": "When management credibility is the lever", "confidence": null, "extraction": { "at": "2026-04-29 12:07:50.073129+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": null, "whyItWorks": "- **Maximum credibility**: no adjective you could write is as damning as the\n target's own prior statement.\n- **No rebuttal path**: management can't argue they didn't say it.\n- **It forces accountability onto a person**, not an institution — even if\n you aren't explicitly naming a villain elsewhere.\n- **Reporters amplify it**. 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The gap is the\npunchline.", "familyLabel": null, "categoryName": null, "categorySlug": null }, "agent": null, "layer": "document", "agents": null, "matchId": "526a81fe-d3f9-4019-8bd3-26c246782626", "evidence": null, "pageRefs": null, "priority": null, "whenToUse": "When relative underperformance is the core argument", "confidence": null, "extraction": { "at": "2026-04-29 12:07:50.073129+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": null, "whyItWorks": "- It's the **most credible claim in the deck** because it's arithmetic, not\n opinion.\n- It's immediately **actionable** — close this gap and value accrues.\n- It **pre-empts the \"context is different\" defence** by pitting the target\n against direct peers in the same category.", "antipattern": null, "cardinality": null, "narrativePurpose": null }, { "tool": { "name": "Sum of parts", "slug": "sum-of-parts", "status": "active", "bestFor": "For breakup / spin-off theses", "canonId": "019dd9e1-51e5-73ad-9d1e-e77d4afe3125", "version": 1, "bodyDocId": "019df22a-9ecd-71db-8fa1-5f5eff36697f", "description": "You break the target into its constituent businesses or asset classes, value\neach separately against its own peer set, and show that the total is\nmaterially greater than the current market capitalisation. The \"gap\" is the\nconglomerate discount — or worse, accounting opacity hiding a crown-jewel\nasset.", "familyLabel": null, "categoryName": null, "categorySlug": null }, "agent": null, "layer": "document", "agents": null, "matchId": "6d84eac9-5fbc-4f9c-af67-52d0008daf2e", "evidence": null, "pageRefs": null, "priority": null, "whenToUse": "For breakup / spin-off theses", "confidence": null, "extraction": { "at": "2026-04-29 12:07:50.073129+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": null, "whyItWorks": "- It forces the market to confront **mismatched valuation multiples**:\n \"this company trades like X but owns Y, which trades at", "antipattern": null, "cardinality": null, "narrativePurpose": null }, { "tool": { "name": "Villain naming", "slug": "villain-naming", "status": "active", "bestFor": "When governance or specific decisions are the core thesis", "canonId": "019dd9e1-55a4-74db-9314-0ced4cd46cd2", "version": 1, "bodyDocId": "019dd9a1-88f1-72ad-8f4e-56ec29d7b369", "description": "You identify a **specific person** responsible for the target's underperformance\nor the behaviour you want changed — and name them. 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An individual can be removed; an abstraction\n cannot.\n- It **forces the target to respond personally** — and their defensive\n response usually generates more attention for your thesis.", "antipattern": null, "cardinality": null, "narrativePurpose": null }, { "tool": { "name": "Villain slide", "slug": "villain-slide", "status": "active", "bestFor": "In activist decks where the personality matters", "canonId": "019dd9e1-518c-7404-976a-5be5a517b659", "version": 1, "bodyDocId": null, "description": "A dedicated slide presenting the named villain visually", "familyLabel": null, "categoryName": null, "categorySlug": null }, "agent": null, "layer": "document", "agents": null, "matchId": "4dc402d7-80c6-43dc-8125-abce4cd1f132", "evidence": null, "pageRefs": null, "priority": null, "whenToUse": "In activist decks where the personality matters", "confidence": null, "extraction": { "at": "2026-04-29 12:07:50.073129+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": null, "whyItWorks": "Makes the antagonist concrete", "antipattern": null, "cardinality": null, "narrativePurpose": null } ], "frameworks": [ { "matchId": "b780fc11-9fcf-462a-b082-c7d2e9b4ae26", "evidence": "Table structure comparing company claims vs. activist criticism and outcomes", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:47.188+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 3, "frameworkName": "evidence-matrix" }, { "matchId": "2f373f61-337b-4119-8a7e-264c23c3f07b", "evidence": "The slide maps specific concerns to the activist's view in a structured table format.", "framework": null, "confidence": 0.85, "extraction": { "at": "2026-05-02 20:40:47.694+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 4, "frameworkName": "evidence-matrix" }, { "matchId": 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"framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:50.342+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 7, "frameworkName": "fraud-exposure" }, { "matchId": "4d8e7450-d5e2-435c-98f1-5ede862d9bee", "evidence": "Linking capex anomalies to margin contraction as a predictive indicator of financial manipulation.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:51.196+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 8, "frameworkName": "fraud-exposure" }, { "matchId": "06d22992-624b-4e51-bc0f-0893aaf09a30", "evidence": "The slide explicitly identifies a 'red flag' in accounting disclosures to suggest potential financial manipulation.", "framework": null, "confidence": 0.95, "extraction": { "at": "2026-05-02 20:40:48.156+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 9, "frameworkName": "fraud-exposure" }, { "matchId": "a663185e-016f-469f-9df4-77a7604c9755", "evidence": "Highlighting discrepancies in financial reporting to suggest obfuscation of failing business units.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:49.983+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 10, "frameworkName": "fraud-exposure" }, { "matchId": "5f50440c-dc4c-4bb3-aa31-885fa074641b", "evidence": "Highlights discrepancy between narrative and financial data to suggest misreporting.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.004+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 11, "frameworkName": "fraud-exposure" }, { "matchId": "e62dba44-7c46-4407-ab96-2dfc16c2b9a8", "evidence": "The slide explicitly claims management is concealing strain through slow recognition of bad debt.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.001+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 12, "frameworkName": "fraud-exposure" }, { "matchId": "7fc0a531-762f-4aea-92cc-72c6458f010f", "evidence": "The slide links spending patterns to revenue recognition concerns.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:47.955+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 13, "frameworkName": "fraud-exposure" }, { "matchId": "e437c37a-f5da-4021-b6b0-3d2545cc5608", "evidence": "The slide explicitly calculates organic growth by removing acquisitions to challenge management's reported growth figures.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.662+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 14, "frameworkName": "fraud-exposure" }, { "matchId": "0548b03c-a356-48ae-af11-23a85d674850", "evidence": "The slide frames management as the antagonist due to 'vanishing skin in the game'.", "framework": null, "confidence": 0.8, "extraction": { "at": "2026-05-02 20:40:47.886+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 15, "frameworkName": "antagonist-introduction" }, { "matchId": "d70dacde-08b3-4881-b6bd-c8e33cc50933", "evidence": "Uses SEC filing to highlight lack of skin in the game as a red flag.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.123+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 16, "frameworkName": "fraud-exposure" }, { "matchId": "a4466f05-b39c-455d-b973-b507c9049e75", "evidence": "Direct comparison of valuation multiples between AOS and two distinct peer groups.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.577+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 17, "frameworkName": "comparison_frame" }, { "matchId": "f49ca2dc-7fe4-4094-818d-44cfb918927a", "evidence": "The slide explicitly contrasts analyst 'Buy' ratings with their lack of 'China Presence' to argue they are misinformed.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:48.368+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 18, "frameworkName": "expose_contradiction" }, { "matchId": "d6022ac2-0f4e-447b-bbc6-93120c86d1fe", "evidence": "Side-by-side table comparing exiting vs entering investors", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:49.924+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 19, "frameworkName": "comparison-frame" }, { "matchId": "ef87fb2c-48ec-4d80-9541-e5e59eeaa976", "evidence": "The table builds from segment multiples to enterprise value, adjusts for cash/debt, and arrives at a price target.", "framework": null, "confidence": 0.9, "extraction": { "at": "2026-05-02 20:40:52.075+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "pageNumber": 20, "frameworkName": "valuation_bridge" } ], "patterns": [] }, "storymakers": null, "score": null, "review": null, "activistThesis": { "tone": "adversarial", "notes": "Classic Spruce Point forensic short: front-loaded track-record slide (CECO/LKQ/AMETEK/XPO), SCQA thesis table on p.4 with explicit downside range, capex/margin anomaly pattern matched to Gentex/Caesarstone precedents, CEO-quote pullbacks from earnings calls on p.5, closing sum-of-parts with illiquidity discount on trapped China cash. Stake not disclosed as % (standard for short reports). Dual-class governance critique adds a governance_board dimension alongside the primary fraud_exposure / undervaluation thesis. Released same day as a corroborating J Capital Research short.", "kpisCited": [ { "detail": "AOS 41.1% vs Haier 17.5%, Noritz 31.8%, Rinnai 32.3%", "metric": "Gross margin vs peers" }, { "detail": "AOS 19.6% vs Haier 5.2%, Noritz 5.5%, Rinnai 12.2%", "metric": "EBITDA margin vs peers" }, { "detail": "Underspent guidance by 37%-67% every year 2015-2018", "metric": "China capex forecast miss" }, { "detail": "~$174m over 6 years = 6.5% of sales vs 3.6% industry average", "metric": "ERP project spend" }, { "detail": "Rose from 1.83% to 3.15% of China quarterly sales Q4'17-Q1'19", "metric": "Allowance for doubtful accounts" }, { "detail": "Fell from 8.4% (2006) to a record-low 1.7% (2018)", "metric": "Insider ownership" }, { "detail": "Owns ~1,084 shares (~$53,000) after 17 years at AOS", "metric": "VP/Controller stake" }, { "detail": "$532m, ~84% of total cash, not freely repatriable", "metric": "Trapped China cash" }, { "detail": "45-65% to $17.75-$27.30 per share", "metric": "Implied downside to price target" } ], "closingAsk": "Short A.O. Smith on an estimated 45-65% downside to a $17.75-$27.30 price target as the China narrative cracks and forensic red flags surface.", "extraction": { "at": "2026-04-22 21:06:44+00", "model": "unknown-legacy", "runId": null, "seconds": 507.33252, "promptVersion": null }, "scqaReward": "Fair value of $17.75-$27.30 per share implies 45-65% downside from $48.20, derived from a sum-of-parts applying 0.6-1.0x sales to China/ROW, 1.0-1.5x to U.S., and a 15% illiquidity discount on trapped China cash.", "thesisTypes": [ "fraud_exposure", "undervaluation", "governance_board" ], "top3Reasons": [ "40%+ gross margins are 2x Chinese peers and started cracking in Q1 2019", "Revenue recognition change, rising doubtful accounts, and CFO exit signal aggressive reporting", "84% of cash trapped in China; insiders own a record-low 1.7% and keep selling" ], "scqaSituation": "A.O. Smith is a U.S. water-heater and water-treatment maker repackaged by sell-side analysts as a premium China consumer-products play trading at industrial multiples despite ~35% of sales coming from China and India.", "thesisSummary": "Spruce Point argues A.O. Smith (NYSE: AOS), the U.S. water heater maker, is a structurally broken story dressed up as a premium China consumer play. Gross margins north of 40% — roughly double Chinese peers Haier, Noritz, and Rinnai — began cracking in Q1 2019, exposing commodity economics management had obscured through chronic China capex under-spend (missing guidance by 37-67% for four years) and a bloated $174m ERP project at 6.5% of sales. A May 2018 revenue-recognition disclosure change, revisions to China water-treatment figures, a rising allowance for doubtful accounts, and the CFO's January 2019 departure suggest aggressive top-line reporting. With 84% of cash trapped in China, insiders holding a record-low 1.7%, dual-class governance entrenching the Smith family, and fundamental holders exiting, Spruce Point pegs fair value at $17.75-$27.30 — 45-65% downside from $48.20.", "primaryDemands": [ "Short A.O. Smith shares on 45-65% downside to $17.75-$27.30", "Reprice AOS as a commodity industrial rather than a premium China consumer-products play", "Discount China/ROW sales at 0.6-1.0x vs 1.0-1.5x for U.S. due to trapped cash and broken growth narrative" ], "scqaResolution": "Spruce Point is short AOS and urges investors to reprice the business as a commodity industrial with a stalling China business, trapped cash, and deteriorating governance rather than a premium consumer growth name.", "thesisOneLiner": "A.O. Smith's China growth is cracking while revenue-recognition red flags, unsustainable 40%+ margins and vanishing insider ownership point to 45-65% downside to $17.75-$27.30.", "precedentsCited": [ "Gentex (prior Spruce Point capex/margin-anomaly short)", "Caesarstone (prior Spruce Point capex/margin-anomaly short)", "CECO Environmental (prior Spruce Point short)", "LKQ Corp (prior Spruce Point short)", "AMETEK (prior Spruce Point short)", "XPO Logistics (prior Spruce Point short)" ], "scqaComplication": "Gross margins near 41% — roughly double Chinese peers — are unwinding in Q1 2019 while chronic China capex misses, ERP bloat, a mid-2018 revenue-recognition change, rising doubtful accounts, and the CFO's exit suggest the China narrative and reported revenues are cracking.", "narrativeInterest": 4, "notableSlidePages": [ 1, 4, 6, 8, 15, 20 ], "peerCompaniesCited": [ "Qingdao Haier", "Rinnai", "Noritz", "Xylem", "Flowserve", "Pentair", "Evoqua Water Technologies", "Mueller Water Products" 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The disclosure of “allowance for doubtful accounts” has us concerned, along with the unusual practice of customers pre-paying for products and keeping a deposit with AOS. 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We find strong evidence that accounts receivables are deteriorating and that management may be concealing the strain through very slow recognition.", "attrs": null, "canon": { "kind": { "name": "Paragraph", "slug": "paragraph", "status": "active", "canonId": "5f2affc0-941d-4d07-959d-4bfc1930cea4", "version": 1, "description": "Single prose block in the body of a slide." }, "tool": null, "subkind": { "name": "Paragraph", "slug": "paragraph", "status": "active", "canonId": "019de52c-fb80-75af-aa5c-a7a4bfac2433", "version": 1, "description": null }, "framework": null }, "subkind": "paragraph", "groupRole": null, "confidence": null, "extraction": { "at": "2026-05-02 20:40:48.001+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "componentId": "e9df4f17-5186-4021-ba85-fdcd77087db3", "parentComponentId": null }, { "bbox": { "h": 0.03, "w": 0.2, "x": 0.02, "y": 0.86 }, "kind": "source-note", "text": "Source: AOS financial statements", "attrs": null, "canon": { "kind": { "name": "Source note", "slug": "source-note", "status": "active", "canonId": "23484952-494b-4a5e-b1ad-550d0d70e948", "version": 1, "description": "Attribution / source / caveat placed at the slide footer. 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ERP projects.", "attrs": null, "canon": { "kind": { "name": "Callout", "slug": "callout", "status": "active", "canonId": "019de52c-f8d3-761a-8953-7d37080de5e2", "version": 1, "description": "Highlighted callout box." }, "tool": { "name": "Visual emphasis", "slug": "visual-emphasis", "status": "active", "bestFor": null, "canonId": "019dd9e1-474b-736b-a8eb-a794dd88241c", "version": 1, "bodyDocId": null, "description": "Drawing the eye to one element above the rest of the slide.", "familyLabel": null }, "subkind": null, "framework": null }, "subkind": null, "groupRole": null, "confidence": null, "extraction": { "at": "2026-04-22 23:45:56+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "componentId": "019dd953-5372-7340-8f9b-2edd339dfd43", "parentComponentId": null }, { "bbox": { "h": 0.06, "w": 0.6, "x": 0.05, "y": 0.28 }, "kind": "list", "text": "Average implementation time is 16.9 – 17.4 months vs 72 months at AOS\nOn average organizations spend 3.6% of annual revenues on the project vs. 6.5% at AOS", "attrs": null, "canon": { "kind": { "name": "List", "slug": "list", "status": "active", "canonId": "019de52c-f94b-779b-a53b-fd4904a5f4d2", "version": 1, "description": "Bullet or numbered list." }, "tool": null, "subkind": { "name": "Bullet list", "slug": "bullet", "status": "active", "canonId": "019de52c-fc98-7169-a083-5cab805076ca", "version": 1, "description": null }, "framework": null }, "subkind": "bullet", "groupRole": null, "confidence": null, "extraction": { "at": "2026-05-02 20:40:47.955+00", "model": "google/gemini-3.1-flash-lite-preview-20260303", "runId": null, "seconds": null, "promptVersion": null }, "componentId": "d786699d-d9fe-49e4-99c1-140c1ab8d004", "parentComponentId": null }, { "bbox": null, "kind": "metric", "text": "ERP cost as % of sales: 6.5%", "attrs": null, "canon": { "kind": { "name": "Metric", "slug": "metric", "status": "active", "canonId": "019de52c-f923-73bf-8081-d0b1a8c5264d", "version": 1, "description": "Big-number or KPI value." }, "tool": { "name": "Quantification", "slug": "quantification", "status": "active", "bestFor": null, "canonId": "019dd9e1-47ab-72ce-a079-aab1f5299e88", "version": 1, "bodyDocId": null, "description": "Translating a claim into numbers, charts, or tables.", "familyLabel": null }, "subkind": null, "framework": null }, "subkind": "primary", "groupRole": null, "confidence": null, "extraction": { "at": "2026-04-22 23:45:56+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "componentId": "019dd953-5372-7340-8f9b-3151d3dfb103", "parentComponentId": null }, { "bbox": { "h": 0.08, "w": 0.9, "x": 0.05, "y": 0.17 }, "kind": "paragraph", "text": "In light of concerns about AOS's revenue recognition, we observe that it started an Enterprise Resource Planning (ERP) project in 2013, which took over 6 years to implement. 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"name": "Callout", "slug": "callout", "status": "active", "canonId": "019de52c-f8d3-761a-8953-7d37080de5e2", "version": 1, "description": "Highlighted callout box." }, "tool": { "name": "Visual emphasis", "slug": "visual-emphasis", "status": "active", "bestFor": null, "canonId": "019dd9e1-474b-736b-a8eb-a794dd88241c", "version": 1, "bodyDocId": null, "description": "Drawing the eye to one element above the rest of the slide.", "familyLabel": null }, "subkind": null, "framework": null }, "subkind": null, "groupRole": null, "confidence": null, "extraction": { "at": "2026-04-23 01:18:10+00", "model": "unknown-legacy", "runId": null, "seconds": null, "promptVersion": null }, "componentId": "019dd953-70f3-714d-84be-764bfbebc19c", "parentComponentId": null }, { "bbox": null, "kind": "metric", "text": "Price Target: $17.71-$27.27", "attrs": null, "canon": { "kind": { "name": "Metric", "slug": "metric", "status": "active", "canonId": "019de52c-f923-73bf-8081-d0b1a8c5264d", "version": 1, 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In addition to China, AOS's ROW business includes India, which has struggled to deliver on its historical promises to turn a profit and still projected to lose money (3). We also do not believe the China business has stabilized and see risk that AOS continues to miss Street estimates in the back half of the year, increasingly so as the China trade war lingers. Investors must consider that ~84% of AOS's cash is trapped in China, and not freely convertible or easily repatriated. 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