Virgin Galactic looks like newest cult stock as short sellers dig in
BY Reuters — 3:17 PM ET 02/19/2020
By Noel Randewich
SAN FRANCISCO (Reuters) - Wall Street's newest cult stock appears to be Richard Branson's Virgin Galactic Holdings Inc (SPCE), as investors drive the space tourism stock to sky-high levels and short sellers dig in their heels.
Virgin Galactic (SPCE) jumped 15% on Wednesday, adding to a rally that has seen the money-losing company surge over 300% since early December.
That hypersonic ascent has made it a favorite among short sellers betting the shares will eventually fall back to earth, drawing comparisons to Tesla Inc (TSLA) , which has also surged in recent months.
"I’m calling it Tesla Junior because it's showing all the signs of becoming a cult stock on the long and on the short side," said Ihor Dusaniwsky, a managing director at S3 Partners, a financial analytics firm.
Like other so-called cult stocks, interest in Tesla and Virgin Galactic (SPCE) is driven by speculation about big future payoffs rather than fundamentals.
The value of short bets against Virgin Galactic (SPCE) hit a record $500 million on Tuesday after the stock surged to its own all-time high, according to Dusaniwsky. The company's rally this year has cost short sellers $345 million in paper losses.
Virgin Galactic (SPCE) is racing against SpaceX and Amazon.com Inc CEO Jeff Bezos' Blue Origin to bring tourists into space, but is the only one of the three whose shares are publicly listed. That makes Virgin Galactic (SPCE) the only option for stock market investors who want to buy into the emerging business of space travel.
Traders on Wednesday were paying the equivalent of a 34% annual interest rate to borrow Virgin Galactic (SPCE) shares to make new short bets, reflecting a shortage in the shares due to its popularity among short sellers. Short sellers borrow shares and then sell them, expecting to buy them back at a lower price and pocket the difference after paying the stock lender interest.
Underscoring retail investors' interest Virgin Galactic (SPCE), the company was the second most traded stock on Fidelity's online brokerage in recent sessions, with two-thirds of clients buying shares, rather than selling. Orders for Virgin Galactic (SPCE) on Fidelity trailed only Tesla.
Helped by improved profitability, Tesla has seen its stock surge 120% this year, including a 7% jump on Wednesday.
Traders are shorting $18 billion worth of Tesla's shares, dwarfing overall short bets against Virgin Galactic (SPCE). Those bets are equivalent to 15% of Tesla's float, while short bets against Virgin Galactic (SPCE) are equivalent to 31% of that company's stock float, up from 7% in November.
(Reporting by Noel Randewich, additional reporting by Chuck Mikolajczak in New York; Editing by Lisa Shumaker)
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