On Short Squeezes and Other Nonsense
Quick discussion of Hims and Carvana. Also, what Savers Value Village disclosed that has spooked investors, and tying it to risks we spotlighted months ago.
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Crazy week! Today’s agenda…
If you missed yesterday’s update on why more red flags are flying over Signet SIG 0.00%↑ you can read it here.
Why Hims & Hers HIMS 0.00%↑and Carvana CVNA 0.00%↑ are reminders of the dangers of confusing brains with reality when playing a short squeeze.
Why shorts are adding to their positions in red-flagged Saver’s Value Village SVV 0.00%↑ after its most recent earnings and the filing of its 10-K.
1. The Other Side of Short Squeezes
One distinguishing factor with Signet, which had been popular with short-sellers early last year, is that it has already tumbled… losing nearly half its value since I first red-flagged it last April.
Compare that with Carvana, which at its peak a few days ago was up 41% year to date. Or, better yet, Hims, which spiked an astonishing 172.8%. Again, that’s YEAR TO DATE, or less than two months.
Hopefully investors, especially in Hims, weren’t confusing their own genius – or lack thereof – for the reality of a short squeeze.
As I wrote Thursday as Carvana started to fall on guidance concerns after reporting earnings – in something I headlined “A Carvana Kinda Market”…
The moves in many of these stocks like Hims have been exaggerated because of short squeezes, except: These are not just short squeezes or the mother of all short squeezes, but the mother of the MOTHER of all short squeezes.
Squeezes are fun while they last, even wildly profitable for those who play that game, but like any game – and it IS a game – there are always losers. With short squeezes, on the way up, it’s a reminder as my pal J.C. Parets of All-Star Charts tweeted the other day: short-sellers are future buyers.
To which I say… until they’re not. Because when they’re gone, they’re gone… and if all doesn’t go right those investors – who rose the express elevator up are likely to walk into an empty elevator shaft on the way down. (That’s because short sellers, if they’re still in the stock, are buyers on the way down, too – often cushioning the blow.)
Now, thanks to their stocks having lifted off the launchpad, with Hims seemingly on its way to Mars, short interest has plummeted. As might be expected, with a stock rising as fast and furiously in such a short period as Hims did, its short interest has fallen just as fast – down by two-thirds during in the same span.
Easy Come…
Most of that decline came after the FDA made it official Friday that there is no more shortage of the GLP-1 semaglutide, which is known by most as Novo Nordisk’s NVO 0.00%↑ Ozempic and Wegovy.
Next up is Eli Lilly’s LLY 0.00%↑ Tirzepatide, known better as Mounjaro and Zepbound. They’re in the middle of a legal tug-o-war between the compounding drug industry and the FDA and Eli Lilly and Novo Nordisk over the rights of the compounders to concoct these dugs. (You can only imagine what’ll likely happen to the stock once that get resolved, assuming the FDA and the drug companies win. If they don’t, the implications are enormous, since – in its simplest form – we’re talking drug patents and a loophole the likes of Hims, via the compounders, were able to take advantage of when those GLP-1s were in short supply. But I digress...)
And let’s not forget the company’s upcoming earnings, which are expected to be blockbuster, but keep in mind: With perceived growth stocks it’s not about the past but whatever the company says about its future… and whatever is really going on with its core non-GLP baldness and erectile dysfunction drugs.
And for the record, and for the trolls and snarks among you: Hims is still more than double where it was when I first red-flagged it. Then again, to repeat what I’ve said repeatedly: The stock initially got to current levels not on fundamentals, but on the backs of shorts-sellers, who are now mostly gone, taking their natural buying cushion along with them.
(To read more on this, I highly recommend Paul Cerro’s work on Hims at his Cedar Grove Management. What makes Paul’s research so compelling isn’t just that he once worked at Hims’ competitor Ro, but he was a loud long on Hims. But as things evolved, he continued his research and became so concerned, he went from long to short. It’s rare to see that these days. Most of us, yours truly included, can let ego get in the way. The best investors don’t.)
Raising red flags over battleground stocks like Hims often evokes polarizing emotions, bringing out the worst in people, which is silly, of course.
If you learn nothing else about investing, it should be that there are two sides to every story and trade. And if nothing else, especially when you start feeling smug… respect the risk.
2. Why Red Flags Still Fly on SVV
Turning to Savers Value Village SVV 0.00%↑, an old fave, which I first red-flagged in March in collaboration with my friend and former short-seller Katherine Spurlock…
Until yesterday, the stock had fallen by about half since that first report.
After reporting earnings late Thursday, they tumbled another 20%…
Here’s the thing... unlike those other companies it didn’t fall because short-sellers had been squeezed out. Since it already had tumbled, it hadn’t become enough of a battleground to stoke the typical emotions that turn a stock into a magnet for a squeeze.
Yet from what I can gather on Friday, in response to earnings and an interesting disclosure in its 10-K, shorts were adding to their positions.
More specifically…