Is This The End Of Naked Short Selling?
https://oilprice.com/Energy/Energy-General/Is-This-The-End-Of-Naked-Short-Selling.html
By James Stafford - Oct 16, 2023, 6:01 PM CDT
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American investors have been taken for a trillion-dollar ride by naked short sellers, in what could turn out to be the biggest financial regulatory scandal in North American history.
While what is now an all-out war on naked short sellers intensifies, there is a new flashpoint on the front line–a potentially devastating ruling targeting those who are alleged to make illegal naked short selling possible: The Facilitators: bankers and brokers.
On September 29, Federal District Court Judge Lorna Schofield of the Southern District of New York issued a ruling that has the potential to significantly disrupt Wall Street compliance, and is a major first step towards protecting retail investors from fraud.
In Harrington Global Opportunity Fund Ltd. v. CIBC World Markets, Inc et.al, Judge Schofield found that broker-dealers may be primarily liable for manipulative trading initiated by their customers because they serve as “gate-keepers” of trading on securities exchanges.
These broker-dealers have a “continuing responsibility to ensure that their customer’s order flow ... is in compliance with all applicable rules, regulations and laws and detect and prevent manipulative or fraudulent trading … under the supervision and control of the firm,” the judge ruled.
The defendants in the case had motioned to dismiss Harrington’s claims of market manipulation and spoofing (when traders place market orders and then cancel them before the order is ever fulfilled, manipulating prices in the meantime). Judge Schofield denied the motion after hearing arguments that broker-dealers are not responsible for “their customers’ trading”.
Instead, the ruling recognizes that not only are broker-dealers the gate-keepers who can enable illegal naked short selling, but they are responsible, and thus liable for their customers’ actions. Schofield described broker-dealers as “reckless in not knowing that the trades being executed at their customers’ direction were manipulative”.
Naked Short Selling: ‘Financial Weapons of Mass Destruction’
Naked shorting creates a dangerous minefield for retail investors. But it’s a minefield that dealer-brokers may now be held liable for thanks to the recent ruling.
Short-selling itself isn’t illegal. In order to legally sell a stock short, traders must first secure a borrow against the shares they intend to sell. Where the September 29 ruling comes into play is at the point of the broker-dealer. Any broker who enters into a stock short on behalf of a trader must have assurances that his client will make a settlement.
As opposed to a “long” sale (where the seller owns the stock), a “short” sale can be either “covered” or “naked”.
If it’s covered, then there is no issue: the short seller has already borrowed or arranged to borrow the shares when the short sale is made.
When things get naked, the regulatory environment becomes riddled with compliance holes. With a naked short, the short seller is selling shares it doesn’t own and has made no arrangements to buy. That means the seller cannot cover or “settle” in this instance. More profoundly, it means they are selling ghost shares that simply do not exist without their further action. The ability to sell an unlimited number of non-existent shares in a publicly-traded company gives a short seller the ultimate power: To destroy and manipulate a company’s share price at will.
This illicit practice artificially dilutes share prices and then companies find themselves in a position where they have to scramble for capital, Bryan Barkley points out in in-depth research published by the Medium.
That scramble then leads to shareholder dilution in more capital raises, in the best cases, and bankruptcy, in the worst cases. If things get to bankruptcy, Barkley writes, then short sellers win big because they no longer need to close out their short positions.
Following the 2008/2009 financial crisis, naked short selling was classified as illegal in the United States, though that labeling has done nothing to thwart this lucrative game.
What makes the September ruling so impactful is this: Without the big banks and financial institutions’ complicity, this highly destructive form of naked short selling could never happen. Instead, they actively facilitate the destruction of shareholder value.
The reason some big banks allow it, despite their sizable compliance departments, appears quite simple: These illegal transactions are highly lucrative. The short-term windfall profits associated with the creation of counterfeit shares are too tempting to resist.
“[...] brokers will place a marker or pledge to deliver the shares on the investors’ accounts, which are made by the seller’s clearing firm”, Barkley explains. “Abusive and unchecked naked shorting can lead to a loss of shareholder rights, including disenfranchisement by overvoting and the resulting throwing out of votes by brokers to conceal the breadth of the naked shorting problem, which could also lead to fraudulent vote results orchestrated by broker-dealers instead of shareholders.”
It often goes well beyond “ghost” shares, too. The most nefarious of short sellers target companies with negative reports–sometimes with legitimate information, and sometimes with falsehoods or half-truths–to drive down share prices with maximum impact, thus ensuring that the companies lose their ability to obtain financing. Once that process is completed, naked shorters then begin to offer those same companies alternative financing (predatory debt), which they have no option but to accept.
When broker-dealers are complicit in this, the system is broken. And complicity takes many forms, including willful booking of client shares as “long” when they are actually “short”.
Gaps in the regulatory environment have continued to fail to subdue these illegal activities.
Keeping the Brokers in Check: A Global Loophole
Even before the 2008/2009 financial crisis, there were measures in place intended to protect retail investors and regulate the activities of brokers with respect to short selling.
The SEC’s Regulation SHO took effect in January 2005 and specifically targeted “persistent failures to deliver and potentially abusive ‘naked’ short selling”. Amendments intended to further strengthen these regulations were added in 2008, and in 2010, the SEC adopted Rule 201, restricting the price at which short sales could be made when a stock was experiencing significant downside pressure.
Additionally, the SEC notes:
Rule 204 requires firms that clear and settle trades to deliver securities to a registered clearing agency for clearance and settlement on a long or short sale in any equity security by the settlement date or to take action to close out failures to deliver by borrowing or purchasing securities of like kind and quantity by no later than the beginning of regular trading hours on the settlement day following the settlement date for short sale fails, or no later than at the beginning of trading hours on the third settlement day following the settlement date for long sale fails, and fails attributable to bona fide market making (“close out date”). If a firm that clears and settles trades has a failure to deliver that is not closed out by the beginning of regular trading hours on the applicable close-out date, the firm has violated Rule 204 and the firm, and any broker-dealer from which it receives trades for clearance and settlement, is subject to the pre-borrow requirement for that security.
However, as Barkley points out, the SEC does not publish FTDs (failures-to-deliver) of U.S.-issued securities traded and settled abroad (including Canada). This means a significant number of FTDs are never accounted for, essentially creating a naked free-for-all.
Last year, UBS Securities LLC conceded to having failed to close out an astounding 5,300 FTDs in the previous decade, yet still kept executing new short sales in the tens of thousands.
“This is naked shorting and FTD abuse on a significant scale, likely involving many billions of dollars,” Barkley writes.
UBS was fined $2.5 million for violating Regulation SHO. Shareholders were left holding the empty bag, though. And likely lost billions of Dollars in the process.
Also last year, Gar Wood Securities LLC was fined for accepting 2,000 short sale orders without the third-party brokers having located the securities they were borrowing against. Gar Wood was fined $100,000 (which is pathetic).
More recently, in August this year, California-based Wedbush Securities Inc. was fined $6 million by the CTFC (Commodity Futures Trading Commission) for failing to “supervise” trades from third-party brokers, and for dubious private communications. Separately, Wedbush was fined another $10 million by the SEC. And thirdly, in relation to failure to close out FTDs, Wedbush was fined a mere $975,000, a sum that appears to be simply the cost of doing business in the naked short arena.
With regard to violations of Regulation 204, a NYSE American LLC waiver notes:
During the Relevant Periods, the Firm failed to timely close out approximately 2,056 FTD positions due to the Firm failing to timely borrow shares, recall shares that were out on loan or otherwise acquire shares and deliver them in accordance with the requirements of Rule 204(a).
During the period between January 1, 2016 through July 31, 2020, on approximately 390 occasions, the Firm further failed to place a security in the penalty box as required by Regulation SHO Rule 204(b) and to send the notice required by Regulation SHO Rule 204(c).
Additionally, in December 2020, Canadian Cormark Securities Inc and two others pinged the SEC’s radar, with the SEC instituting cease-and-desist orders against Cormark and settling charges against Cormark and two other Canada-based broker-deals for “providing incorrect order-making information that caused an executing broker’s repeated violations of Regulation SHO”. According to the SEC, Cormark and ITG Canada caused more than 200 sale orders from a single hedge fund to the tune of more than $660 million (between August 2016 and October 2017) to be mismarked as “long” when they were, in fact, “short”—a clear violation of Regulation SHO. Cormark agreed to pay a penalty of $800,000, while ITG Canada—one of the other broker-dealers charged—agreed to pay a penalty of $200,000.
The Heroes of the Day
The plaintiffs in In Harrington Global Opportunity Fund Ltd. v. CIBC World Markets, Inc et.al, represented by Warshaw Burstein, LLP, have every reason to celebrate.
The judge’s ruling categorically means that going forward, big banks and financial institutions won’t just be fined for not actively closing shorts, they could be held liable for what so far has been an estimated trillion dollars in losses to retail investors, companies and the U.S. government.
“Brokers can no longer claim that they are not liable for their customers’ trading activities because they are only following their directions. A broker can now be held primarily liable under the federal securities laws when they recklessly fail to monitor, detect and prevent the manipulative or fraudulent trading of their customers,” Warshaw Burstein said in a statement following the judge’s September 29 ruling.
“This decision is a clear and unambiguous warning to broker-dealers that unless they fulfill their gate-keeper responsibilities of monitoring their customers’ trading they can be held primarily liable for their client’s manipulative conduct,” the law firm added.
Canada is one venue where this warning should be heeded first and foremost and where naked short sellers have in our view been fleecing U.S. retail investors and companies for years, taking advantage of a loophole that only requires them to have a “reasonable expectation” of settling a trade, without actually borrowing the stock. The U.S. September ruling adds further fire to a slower-moving regulatory crackdown in Canada by the OSC and the other regulatory authorities.
The game of capital market destruction is now hopefully coming to an end, and this latest ruling hopefully marks the beginning of the end. There is still a long way to go and this really should be front page news, but the banks are brokers have big marketing budgets so i imagine there will be very little coverage on this important news for investors in North America.
15 Companies That Could Be Poised For A Short Squeeze
Tesla (NASDAQ: TSLA)
Tesla , the trailblazing electric car company, has consistently attracted the attention of short-sellers. For three consecutive months up to August, Tesla was the most shorted among large-cap U.S. stocks, as per data from a securities lending firm. Short-sellers bet on stock prices falling, and with Tesla's share price often exhibiting volatility, it presents both opportunities and challenges. This dynamic was evident when the company's stock surged by over 5% after hints about the potential of Tesla's Dojo supercomputer came to light.
Various strategies underline the short positions against Tesla. Data revealed diverse approaches taken by investors against Tesla, as disclosed to regulatory bodies. Some investors have adopted a mixed stance, maintaining both long and short positions, while others have sought to encapsulate the positions of various funds. Additionally, some firms aim to negate market risks by balancing the impact of rising and falling prices across different asset categories.
Public sentiments and reactions have further added to the narrative. Tesla's CEO, Elon Musk, is renowned for his candid remarks. He didn't hold back when commenting on the short position that Microsoft's co-founder, Bill Gates, took against Tesla. Musk emphasized that the maximum yield from a short position on Tesla would be realized only if Tesla faced bankruptcy – a bold reflection of his faith in the company's trajectory. Hedge funds have notably increased their short positions on U.S. stocks, reaching significant levels in recent times. Yet, the unpredictability tied to Tesla’s stock, highlighted by the experiences of various hedge fund managers, underscores the intricate dance of conviction and market dynamics when it comes to short selling.
SoFi Technologies (NASDAQ: SOFI)
SoFi Technologies stands out as one of the prominent players. Heralded as a disruptor in the finance industry, SoFi began its journey focused on student loan refinancing but quickly expanded its offerings to encompass a myriad of financial services, ranging from personal loans to investment platforms and even insurance products.
Given its ambitious growth trajectory and the dynamic nature of the fintech industry, SoFi naturally attracts a diverse array of market opinions. Short sellers, constituting about 12.85% of its float, have often targeted the stock, albeit not with an overwhelming sentiment. This skepticism can be attributed to a mix of factors: the competitive landscape of fintech, regulatory challenges, and the broader question of profitability for digital-first financial platforms.
However, to narrow the narrative of SoFi down to just its short interest would be a disservice to its larger story. The company, like many in its industry, represents the vanguard of a financial revolution. Traditional banking models are being constantly challenged and reshaped by digital solutions that prioritize user experience, accessibility, and transparency. SoFi's model, which places a strong emphasis on community and holistic financial wellness, is resonating with a younger, tech-savvy generation that values seamless digital interactions.
Beyond Meat (NASDAQ: BYND)
Beyond Meat emerged on the scene as a beacon for plant-based protein enthusiasts, revolutionizing the market with its innovative meat alternatives. However, the stock market's honeymoon phase with the company seems to be waning. After witnessing a decline in its stock price, dropping from a commendable $65 to a concerning $26, doubts began to surface. The second quarter's financial results further exacerbated these sentiments, with revenue falling short by $2.2 million and a loss per share exceeding expectations by 35 cents. Consequently, 41.47% of its float is being shorted, indicating a significant lack of confidence among investors in the company's near-term prospects.
Challenges for Beyond Meat aren't solely limited to stock performance. The once buoyant buzz surrounding plant-based proteins appears to be tempering. The company's efforts to diversify its product range, such as the introduction of Beyond Jerky, haven't managed to capture the enthusiasm and market share as hoped. Collaborations and trials with giants like McDonald's, KFC, and Pizza Hut have not yielded long-term partnerships, with several tests failing to cement a permanent place on their menus. Further adding to their woes, establishments like Dunkin', Hardee's, and A&W have even removed Beyond products from their offerings altogether.
The broader economic landscape also seems to be playing a pivotal role in shaping consumer behavior. As grocery prices continue to soar, customers are pivoting away from premium-priced Beyond Meat products, seeking more wallet-friendly protein alternatives. This trend poses a formidable challenge for the company, as they not only need to innovate and adapt but also tackle the financial pressures that are driving consumers toward more economical choices.
Big Lots (NYSE: BIG)
Big Lots, a prominent retail chain, recently found itself grappling with the multifaceted challenges presented by supply chain disruptions and mounting freight costs. Earlier in the year, the retailer endured the strain of excessive inventory, which inevitably weighed down on its overall performance. These headwinds have led to skepticism among investors, with a notable 30.37% of its float shorted, suggesting heightened anticipation of a potential decrease in its stock value.
Nevertheless, Big Lots has demonstrated resilience. The company's second-quarter earnings painted a more optimistic picture, reporting revenues that surpassed expectations. In a bid to navigate the tumultuous retail landscape, Big Lots has initiated significant shifts in its operational strategy. By effectively reducing its inventory backlog and thoughtfully repositioning its product assortment, the company aims to cater more closely to price-conscious consumers. Complementing these efforts, enhanced cost controls and improved balance sheet management are being employed to fortify the company's financial health. Management remains cautiously optimistic, projecting that inventory levels will find a more harmonious alignment by the fourth quarter.
However, the road to full recovery remains uncertain. While Big Lots has shown commendable adaptability in its strategies, the market's sentiment is mixed. Several analysts have adjusted their projections for the company, resulting in trimmed targets for the stock price. The divide in opinion underscores the volatile nature of the retail sector, with some viewing Big Lots as a potential hold, while others lean towards selling. Only time will reveal the true trajectory of Big Lots in the ever-evolving retail space.
Groupon (NASDAQ: GRPN)
Groupon, once synonymous with local deals and experiences, encountered a formidable challenge as the pandemic took hold globally. As a platform heavily reliant on local businesses and consumer experiences, Groupon faced an existential crisis during the peak of the pandemic in 2020. Many of the businesses that partnered with Groupon temporarily shuttered their doors, leading to a precipitous decline in the company's stock value. The blow was so severe that it necessitated a restructuring plan. As part of this, Groupon made the painful decision of laying off or furloughing a substantial portion of its workforce, amounting to 2,800 employees.
Desperate times call for transformative measures, and in December 2021, Groupon made a strategic move to bring former Zappos CEO, Kedar Deshpande, on board. Tasked with spearheading the company's revival, Deshpande had a herculean responsibility. However, by August, when the company unveiled its second-quarter results, it was evident that the road to recovery was still fraught with challenges. Groupon announced an additional reduction of 15% of its staff, translating to more than 500 employees being shown the door.
In its efforts to revitalize its operational model and return to profitability, Groupon is realigning its focus to its foundational offerings. Key strategies include the streamlining of its cloud infrastructure, optimizing office space utilization, and making the decision to shut down its Australia Goods business. With 33.21% of its float shorted, investor skepticism is palpable. Yet, through these restructuring efforts, Groupon endeavors to pivot, adapt, and reclaim its status as a premier deals platform. The future will be a testament to the efficacy of these strategic decisions.
Fisker Inc. (NYSE:FSR)
The electric vehicle (EV) market has seen its fair share of ups and downs, and Fisker Inc. is no exception. Emerging as a player in the increasingly competitive EV space, Fisker embarked on its public journey via a Special Purpose Acquisition Company (SPAC) merger in October 2020. With an initial public offering at $9 per share, the company experienced a remarkable surge during the frenetic Reddit trading phenomenon in early 2021, where its stock price reached a zenith of $31.96. However, like the ebb and flow of tides, Fisker's share value subsequently receded, closing at a sobering $6.17 on Oct. 13.
The challenges for Fisker didn't end with the fluctuating stock price. In December 2022, the company faced a significant blow when the short seller, Fuzzy Panda Research, rang alarm bells over potential liquidity issues plaguing Fisker. While Fisker vehemently denied these claims, the assertions undoubtedly cast a shadow over the company's credibility and stock performance. The repercussions were evident in the company's soaring short interest, which escalated to a staggering 46.53% of its float, making it among the shorted stocks on the list.
Such high short interest underscores the skeptical lens through which investors view Fisker's prospects. As with any emerging industry, the electric vehicle sector presents both vast opportunities and inherent risks. For Fisker, navigating these challenges while assuaging investor concerns will be paramount in its quest for long-term stability and success.
Cassava Sciences, Inc. (NASDAQ: SAVA)
Cassava Sciences, Inc., a nascent player in the biotechnology arena, has fixed its sights on a colossal challenge: creating viable treatments for Alzheimer's disease. Such a significant endeavor is bound to attract attention, and in Cassava's case, this attention has been a mixture of optimism and skepticism. While some analysts have put forth an optimistic target of an $80 upside for the company's stock, a substantial portion of the market appears less convinced. A telling indicator is the significant short position, with 36.10% of the company's float being shorted.
The company's journey and investor sentiment aren't as linear as mere stock numbers. Insider Monkey's survey in the second quarter of 2023, which analyzed 910 hedge fund portfolios, unveiled that eight hedge funds took the plunge and acquired shares of Cassava Sciences. Of these investors, Ken Griffin's Citadel Investment Group emerged as the largest stakeholder, wielding an impressive $3.7 million stake in the firm. Such significant investments provide a counter-narrative to the overwhelming short positions and hint at a divided investor sentiment.
Interestingly, Cassava Sciences isn't alone in its position. The market has other players like Carvana Co. (NYSE:CVNA), Novavax, Inc. (NASDAQ:NVAX), and BioXcel Therapeutics, Inc. (NASDAQ:BTAI) that have also seen a large fraction of their float being shorted. As with Cassava, the reasons for these positions can vary, but they underscore the delicate balance of optimism and caution that permeates the stock market, especially in sectors as unpredictable as biotechnology.
ai, Inc. (NYSE: AI)
C3.ai, Inc. is not just another name in the tech sector; it positions itself at the forefront of the AI revolution, serving as a conduit for businesses to seamlessly incorporate artificial intelligence into their operations. The promise of AI, often touted as the future of technology, makes C3.ai's offering particularly alluring. Moreover, the firm's financial milestones, especially its consistent record of outperforming analyst EPS estimates in recent quarters, highlight its growth potential and market competency.
Yet, there's a peculiar disconnect. Despite its inherent potential and recent financial achievements, the market sentiment around C3.ai appears to be tethered. On average, analysts have pinned a "Hold" rating on the stock, suggesting a degree of uncertainty about its future trajectory. This cautionary stance seems to resonate with short sellers too, who have shorted a significant 3171% of the stock, indicating a lack of confidence in its mid-to-long-term prospects.
However, it's essential to look beyond these overarching sentiments to get a clearer picture. When Insider Monkey dissected the investment patterns of 910 hedge funds during the June quarter of 2023, they found that 23 hedge funds had placed their bets on C3.ai. Among these investors, Philippe Laffont's Coatue Management emerged as the most bullish, underlined by their hefty $53.7 million stake in the company. Such divergent perspectives, where on one hand there's skepticism, and on the other, significant investments from hedge funds, portray a complex narrative of opportunity, challenge, and the unpredictable nature of the tech sector.
Guess?, Inc. (NYSE: GES)
In the roller-coaster ride that defines the consumer cyclical sector, Guess?, Inc. has staged an impressive turnaround. Known globally for its chic apparel and accessories, the brand faced challenges in the early parts of the year. However, fortunes took a turn for the better in late August. Not only did the company's shares recover most of their losses, but they also surged on the back of a robust earnings report. The company's financial performance exceeded both revenue and profit expectations set by analysts, a testament to its enduring appeal and operational agility.
This resurgence has not gone unnoticed in the investment community. Delving into the intricate world of hedge funds, data from the June quarter of 2023 reveals a noteworthy pattern. Out of 910 hedge funds profiled by Insider Monkey, 16 deemed Guess?, Inc. a worthy addition to their portfolios. This points to a growing confidence in the brand's trajectory and market position.
Leading the pack of these institutional backers is the renowned Marshall Wace LLP, steered by Paul Marshall and Ian Wace. Their commitment to Guess? is evident from their whopping $27.9 million stake in the company. As the brand continues to navigate the fluctuating consumer landscape, such hefty endorsements serve as a significant vote of confidence. With a short interest of 30.20%, the growing institutional support signals a potential clash between market pessimists and optimists, with Guess? at the center of this intriguing narrative.
The Lovesac Company (NASDAQ:LOVE)
The Lovesac Company has emerged as a beacon of resilience and growth, but that hasn’t stopped it from the barrage of short sellers. With its distinctive furniture offerings and a footprint that spans across more than three dozen states in the U.S., the company's performance has consistently defied market expectations. The past four quarters have been a testament to this, with the firm beating analyst EPS estimates on every occasion. This impressive streak is not merely a statistical anomaly but a reflection of its solid business acumen, adaptability, and understanding of consumer preferences.
Further buoying the company's prospects is the widespread market consensus. Contrary to the usual skepticism associated with stocks in this sector, The Lovesac Company enjoys a "Strong Buy" rating on average, reflecting heightened confidence in its future growth trajectory and profitability.
Yet, perhaps the most compelling endorsement comes from the hedge fund universe. A deep dive into the Q2 2023 portfolios by Insider Monkey uncovered that 17 hedge funds had cast their lot with Lovesac. Among these big players, Paul Marshall and Ian Wace's Marshall Wace LLP stands out as the most ardent believer in the company's potential. Their significant stake, comprising 587,770 shares valued at a staggering $15.8 million, underscores the broader investment community's faith in The Lovesac Company's direction and strategies. In an environment where short interest is still notably high at 32.94%, such institutional backing offers a counter-narrative, hinting that The Lovesac Company may well continue its growth journey, unhindered by market skeptics.
ChargePoint Holdings Inc. (NYSE: CHPT)
ChargePoint Holdings Inc. is a testament to the fact that being in a booming industry doesn't guarantee instant profitability. While not directly manufacturing electric vehicles (EVs), the company is deeply entrenched in the EV ecosystem, operating the most expansive network of charging stations across North America and Europe. Yet, despite this strategic positioning in a rapidly expanding market, the past three years have been tumultuous for ChargePoint, with its stock tumbling by a staggering 69%.
This downward trajectory comes despite the company showcasing remarkable growth. The second quarter alone saw a revenue surge of 39% year over year. However, this growth is juxtaposed with the company's sizable net loss of $125.3 million. Such a mismatch between revenue and profitability indicates challenges in maintaining operational efficiencies or heavy investments aimed at future expansion.
Yet, with a short interest of 26.84% of its float in early October, ChargePoint becomes an interesting case for market watchers. If the company, in the near future, manages to pivot towards profitability, the ensuing scramble among short sellers could trigger a notable short squeeze. The high short interest suggests that a significant portion of investors is betting against the company. But with the EV market's potential and ChargePoint's expansive network, any positive financial surprises could dramatically reshape its market narrative.
BLNK Charging Co. (NASDAQ: BLNK)
BLNK Charging Co. stepped onto the public stage with a clear and compelling proposition: capitalize on the electric vehicle (EV) revolution by providing charging infrastructure. The idea was sound, given the rapid adoption of EVs and a glaring need for widespread charging solutions. But as with many innovative concepts, execution and external market factors can weigh heavily on outcomes.
A year-to-date drop of 71.96% in its share price is a clear indication that all has not been rosy for BLNK. While the broader EV industry has faced headwinds—ranging from chip shortages to supply chain disruptions—it's evident that BLNK has been particularly hard hit. The company's ability to scale, fend off competition, and ensure profitability amidst rapid expansion might be factors contributing to its current predicament.
Additionally, the bearish sentiment around BLNK is reinforced by its substantial short interest, which currently stands at 31.43%. This is a strong indicator that a significant portion of the market is wagering on the company's continued decline, at least in the short term. Such high short interest can also signal potential volatility, especially if there's any unexpected positive news, which could lead to a short squeeze.
SunPower Corp. (NASDAQ: SPWR)
SunPower Corp., long heralded as a luminary in the solar energy sector, has recently seen its shine wane amidst intense market dynamics. A year-to-date plunge of 68% in its stock price paints a stark picture of the challenges the company has been navigating.
Solar energy, with its sustainable and environmentally friendly promise, has been the talk of the town for investors looking to get on the green energy bandwagon. Yet, despite this broader enthusiasm, SunPower's recent performance underscores the complex matrix of factors at play in this industry. Rising raw material costs, stiffening competition, geopolitical factors impacting supply chains, and potentially the tapering off of government incentives have all been speculated as contributing to SunPower's dimmed outlook.
Adding fuel to this bearish fire is the remarkable short interest on the company, currently hovering at 36.53%. Such a significant percentage indicates that many are betting on SunPower's challenges to persist, at least in the short to medium term. However, it's worth noting that such elevated short interest also carries the potential for sharp upward movements, should there be any positive catalysts, due to the possibility of a short squeeze.
Lemonade, Inc. (NYSE: LMND)
In a world rapidly evolving towards digitization, Lemonade, Inc. stands out as a prime example of how traditional industries can be disrupted. Using artificial intelligence and cutting-edge technology, this insurance tech company has introduced a fresh flavor to the age-old insurance industry.
A notable beneficiary of rising interest rates, Lemonade has showcased commendable financial performance by exceeding analyst EPS estimates consistently over its recent quarters. Its tech-driven model, which promises quicker claim processing and personalized plans, seems to resonate well with a new generation of customers who value convenience and transparency.
However, not all is sunny in Lemonade's grove. A significant short interest of 33.63% indicates that there are market participants who anticipate the company's stock price might sour further. Such skepticism could stem from various factors, including the company's lofty valuations in an industry known for its thin margins, or perhaps concerns about the scalability of its business model in the face of more established insurance giants.
Cipher Mining Inc. (NASDAQ: CIFR)
In the tempestuous world of cryptocurrencies, Bitcoin stands tall as the pioneer and, to many, the gold standard. Cipher Mining Inc., with its focus on Bitcoin mining within U.S. shores, has managed to ride the crypto wave with Bitcoin prices surging by 66% in 2023 alone. This bullish sentiment has also reflected in Cipher's own stock, which has seen an astounding 353.7% ascent year-to-date.
Such meteoric rises, though, are rarely without their skeptics. Cipher, despite its strategic positioning within the crypto-mining industry, posted a net loss of $12.7 million for the second quarter. This, juxtaposed against the company's valuation sitting at a robust 11.2 times sales, has raised eyebrows among some market participants. The short interest, standing at a significant 28.76% of its float, testifies to the belief of a segment of traders that the stock might be due for a downward correction.
But the question that hangs in the balance is: how much of Cipher's stock price is genuinely reflective of its intrinsic value, and how much is speculative exuberance spurred by the broader crypto rally? While it's undeniable that the company operates in a sector that's currently experiencing a gold rush of sorts, the sustainability of its growth will hinge on its ability to turn operations profitable and navigate the notoriously volatile crypto landscape.
By. James Stafford
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