GoPro Inc is due to show off its earnings numbers for the three months through September on Wednesday after the market closes for the day in New York. There release, which comes in the midst of stock market turmoil for the camera maker, could result in some unusual trading, and opportunistic buyers and seller will be watching closely.
SunGard analyst Karl Loomes, in a new report on short squeezes that should result from current market conditions, says that an earnings surprise to the positive could shake those holding shares in GoPro short. A short squeeze occurs if much of the outstanding float of shares in a firm is borrowed, or held short.
GoPro may see a short squeeze
When the price rises, those who have borrowed the shares want to buy them back in order to pay off their debt. this can result in a spike in demand, known as a short squeeze, which can bring price rises and get more short sellers to consider closing their position. It’s the dream of many holding risky stocks that have fallen on tough times, but it doesn’t happen dramatically quite so often as it’s talked about.
Mr. Loom sees evidence for a short squeeze in GoPro Inc from two fronts. On one hand his metrics show that shorting the firm has become a whole lot more common in recent days and weeks. According to his data the price of holding shares in the consumer hardware firm short has risen from 6.5 percent to 16 percent in the last month.
At the same time the number of shares borrowed has risen by about 50 percent. The Nasdaq reports that 31,678,186 shares in the firm were held short as of October 15. That means that traders need about 3 days of volume in order to cover their holdings.
Short interest in GoPro is now at its highest level ever, but Loome doesn’t think that’s the end of the story. In order to spur a short squeeze the firm will need to see a quick surge in the price of shares. In SunGuard’s view, that sharp rise could come in the next few hours.
GoPro earnings are volatile
GoPro is new to the public market, and the firm’s business is very volatile at the same time. Those factors, combined with its high valuation, mean that the minutes and hours after an earnings report can bring huge spikes in the price of the firm’s shares.
Those hoping to see a short squeeze will be hoping for GoPro to surprise Wall Street and beat estimates this time around. Wall Street is, by consensus, looking for the firm to show earnings per share of 29 cents on sales of $433.6M.
On today’s market, for a reason that wasn’t quite clear, shares in GoPro boomed. At time of writing they were selling for $29.96, up 6.13 percent for the day so far. Shares in the firm are still far below the heights they fell from in the middle of this year, but there is clearly some element of excitement heading into the earnings report.