Thursday, 18 April 2024

[the_ad_group id="2845"]

Business News

The Next Short-Squeeze Opportunity? – TipRanks Financial Blog

The Next Short-Squeeze Opportunity? – TipRanks Financial Blog

[the_ad id="21475"]


In most circumstances, retail investors should avoid enterprises that have significant bearish interest. However, it’s possible that an exception to this rule can be made for Mister Car Wash (NYSE:MCW), a provider of conveyorized vehicle washing services. Its positive fundamentals, along with broader interest in speculative ideas, make MCW stock intriguing. As a calculated, high-risk wager, I am bullish on this unique market play with short-squeeze potential.

MCW stock has fallen 63.6% in the past three years.

Setting Up the Short Squeeze for MCW Stock

Let’s talk about the obvious upside catalyst for MCW stock – the potential short-squeeze opportunity. Currently, Mister Car Wash shares carry a short interest of 13.23% of their float. Further, the short-interest ratio clocks in at 13.28 days to cover. To understand why these metrics matter, we must understand the basics of shorting.

In the typical investment framework, an individual or entity purchases a security in the hopes that it rises. If it does, said party may sell the security for a profit. However, with shorting, the opposite directive holds true. An individual or entity sells a security in the hopes that it falls.

For shorting to actually materialize, a bearish trader must first borrow the security in question from a broker. Once acquired, the trader sells the securities immediately with the belief that they will decline in value. If they do fall, the bearish party can pick up the target security cheaply. This way, they can return the borrowed securities back to the broker while pocketing the difference.

Of course, it goes without saying that traders attack enterprises that appear to have negative forward prospects. If bears targeted viable enterprises, they would risk buying back shares at a higher price in order to fulfill the obligation to the broker. Further, the buying activity itself can create a positive feedback loop – in other words, the short squeeze – sending the target security skyward.

For MCW stock, more than 13% of its float – the number of shares available for trading – is held short. Further, based on average trading volume, it would take more than 13 trading sessions to cover the bearish position.

Ordinarily, a security incurring high short interest and high short interest ratio is a bad sign. However, contrarian speculators look at the matter as boxing in the bears. If MCW stock rises, it will take a long time for the shorts to…

Click Here to Read the Full Original Article at TipRanks Financial Blog…


[the_ad id="21476"]