Is It Time for Short Squeeze 2.0?

Possibly. The past few weeks have seen AMC Entertainment (AMC) raise billions of dollars in capital from selling shares at market, and retiring debt. And earlier this week, GameStop (GME) announced it completed a 5-million share sale as well.

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  • By raising this capital, these companies are now well-funded for future expansions. And by paying off debt, they improve their cash flows by avoiding interest payments as well. That doesn’t even get into the possibility of a short squeeze.

    While the market is now reporting GameStop as having a short interest of only 20 percent of shares, compared to over 100 percent of shares at the start of the year, the company’s substantially improved financials place it in a position to become a sort of Amazon (AMZN) of gaming.

    Hires from Amazon, and online pet supply company Chewy (CHWY) also support these changes. The company is vastly different than it was at the start of the year, when its market cap was far less than the current cash on the company’s books.

    Action to take: Shares are in the low $200 range, still well over where they started the year and nearly 5 times higher where they dropped to after brokerages shut down the ability of retail traders to buy shares. The company is potentially on track to head higher, and could offer a strong return amidst sideways markets. In short, we like the stock.

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  • For options traders, a call option like the September $310, going for about $2.20, offers great returns if shares rally back to their pre-earnings report numbers from last week. With the new share issuance done, such a move is possible, and the downside is limited.

     

    Disclosure: The author of this article has a position in the stock mentioned here, and may make further trades in this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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