(Bloomberg) -- Some activist investors are doubling down on their bets on Temenos AG and Grifols SA after short-seller reports roiled the shares of the two European companies. 

Petrus Advisers, the hedge fund run by former Goldman Sachs Group Inc. bankers Klaus Umek and Till Hufnagel, has been boosting its stake in banking software maker Temenos in recent days, people with knowledge of the matter said. Hindenburg Research last week put out a report alleging financial irregularities in the business, which now has a market value of 4.7 billion Swiss francs ($5.3 billion).

Sparta Capital Management, founded by Elliott Investment Management alumnus Franck Tuil, has continued buying shares in blood plasma maker Grifols, according to the people, who asked not to be identified because the information is private. That’s after Gotham City Research LLC published a report last month criticizing its financial reporting.

“Buying the dip can pay off well, but it’s also risky,” said Christoph Seibt, a partner at Freshfields, adding that many management teams underestimate the complexity of activist campaigns. “It can take a long time to build or rebuild trust, but only minutes to lose it.”

Petrus and Sparta are betting their targets will weather the storm after seeing more than $7 billion of combined market value wiped away at one point. London-based Petrus has said most of Hindenburg’s allegations are based on hearsay, though it’s criticized Temenos’ performance and said its interim chief executive officer should be replaced immediately.

Upside Potential

Sparta hasn’t spoken out publicly since the Gotham report on Grifols, which now has a market capitalization of €6.7 billion ($7.2 billion). Tuil said in December that his firm sees a potential for the firm’s stock to triple as it trades at a substantial discount to high-margin health care firms. 

Representatives for Petrus and Sparta declined to comment. 

Grifols has said Gotham City’s report contains false information and speculation, and stood by how it disclosed the related-party transactions highlighted by the short seller. Temenos has said the Hindenburg report contains factual inaccuracies and analytical errors, and has announced an independent review of the allegations. 

The moves by Petrus and Sparta highlight the risks for classic activist shareholders betting on the potential for a rebound in underperforming companies. Such investors often have concentrated portfolios with large positions in just a few companies. 

“Negative news has a greater impact, is much harder to refute but often ends up being less severe than initially thought,” said Natalia Hayday, who works with activists on their investments at advisory firm 7Square.

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