It was fun while it lasted. But it's looking like game over for the Reddit-powered "short squeeze" rebellion on GameStop stock and even some S&P 500 stocks.
All 10 of the most shorted S&P 1500 stocks on March 15, including real estate firm Tanger Factory Outlet (SKT) and GEO Group (GEO) plus consumer discretionary play GameStop (GME), are down since then, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Some lost more than a quarter of their value.
The most shorted stocks are falling even while the rest of the market is surging to highs.
The 10 most-shorted stocks on March 15 are down an average 12.3%. And yet, during that time the S&P 500 is up 3.2% and hitting records. Even GameStop stock, the Reddit-revolution's poster child, is down more than 22% from March 15. And the stock dropped 4% just on Thursday to 170.24, even following news of more involvement by Chewy (CHWY) founder and big investor Ryan Cohen.
Lots Of Money Already Made In GameStop Stock
Big drops in heavily shorted stocks are unwinding one of the year's most exciting and profitable trades. Many retail investors are shifting their bets to other areas like cryptocurrency and marijuana plays instead.
But lots of money was made. Shares of the most shorted S&P 1500 stocks as of March 15 more than doubled this year on average. That's a remarkable gain in a year where the S&P 500 is up 9%.
The trade was as simple as it was inventive. Traders pinpointed highly shorted stocks and coordinated buying using online forums. That surge of buying pushed the beaten-down stocks higher. Investors "shorting" or betting against these stocks had to buy shares to stop losing more money. And that "short squeeze" ginned up even more buying activity.
Stock Shorting Party Over?
Fundamentals, though, eventually mattered. GameStop stock, for instance, is falling following the company's plan to cash in on the squeeze. The company plans to sell upward of 3.5 million shares at the lofty price of 168 a share. Keep in mind the stock traded for less than 10 a share coming into 2021. "The 3.5 million share ceiling reflects dilution of up to roughly 5% relative to the Q4:20 diluted share count of 67.8 million," said Wedbush analyst Michael Pachter, who rates the stock "underperform."
Meanwhile, GameStop profit is seen dropping to a more than $200 million loss in 2021. The company's relative strength line is trending lower, after bouncing wildly as the stock surged and dropped in the last few months. GameStop's RS Rating is a top-notch 99, but its EPS Rating is a dismal 28, as the company missed fourth-quarter earnings estimates.
Analysts still think the new leadership won't save GameStop stock. "We keep Sell as we think little has changed in the fundamental story," said Camilla Yanushevsky, analyst at CFRA. "We hold concerns over ability to maintain competitive positioning due to high dependence on brick-and-mortar and consumers' shift away from physical to digital."
And the short-squeeze doesn't change that.
Short Squeeze Gone: Not Just GameStop Stock
The Reddit rebellion worked. Shorts bailed out of the stocks. But that's watered down much of the explosive upside potential from a short squeeze.
Shorts now control less than 25% of shares outstanding of even the most shorted stocks. Back in January, some stocks had half or more of their shares controlled by shorts. Only 2.3% of S&P 500 shares are shorted, says S&P Global Market Intelligence.
The game is changed now. GameStop stock was 98% controlled by shorts coming into 2021. But following a nearly 800% rally in the stock this year, fear froze the shorts out. Shorts controlled just 24% of shares outstanding on March 15. That takes away the fuel for gains.
Take Tanger Factory Outlet, too. It was the most shorted stock at 31% of shares outstanding as of March 15. But even so, the stock has fallen 7% since that time. That's not even the worst of it. Real estate firm GEO (GEO) has seen shares drop more than 29% since March 15. And that's despite more than 20% of shares being controlled by shorts.
Pain isn't just in highly shortly small caps, either. Communications services firm ViacomCBS (VIAC) was the most shorted S&P 500 stock on March 15. Since then? The stock is down 56%.
Sometimes it's possible to find holes in markets to make money fast. But they always close when discovered by other traders. And that's why sound, durable rules to make money in stocks always prevail.
GameStop Stock Trick Stops
The most shorted S&P 1500 stocks on March 15 are severely underperforming since then
| Company | Symbol | Short Interest As % Outstanding Shares March 15 | Stock YTD % Ch. | % Ch. Stock Since March 15 | Sector | Composite Rating |
|---|---|---|---|---|---|---|
| Tanger Factory Outlet | (SKT) | 31.1% | 64.6% | -7.2% | Real Estate | 45 |
| GameStop | (GME) | 23.6 | 803.7% | -22.7% | Consumer Discretionary | 62 |
| Macerich | (MAC) | 23.3 | 15.8% | -13.3% | Real Estate | 18 |
| United Natural Foods | (UNFI) | 22.2 | 120.6% | -4.2% | Consumer Staples | 93 |
| Bed Bath & Beyond | (BBBY) | 21.9 | 66.8% | -9.1% | Consumer Discretionary | 76 |
| iRobot | (IRBT) | 21.5 | 48.9% | -5.1% | Consumer Discretionary | 87 |
| Tabula Rasa HealthCare | (TRHC) | 21.1 | 0.6% | -0.7% | Health Care | 7 |
| B&G Foods | (BGS) | 20.5 | 7.3% | -6.8% | Consumer Staples | 44 |
| Lannett | (LCI) | 20.2 | -22.9% | -24.1% | Health Care | 2 |
| GEO Group | (GEO) | 20.2 | -34.9% | -30.0% | Real Estate | 13 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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