Thursday was a bit of a wild one for grill maker Weber (WEBR) , an August IPO, which rose 16% on 17 times its normal average volume. That does not tell the whole story though; intraday, the shares briefly eclipsed $12, before closing at $10.04.
This little rally was a long-time coming, and not for the traditional reason of an earnings surprise, or other fundamentally driven event.
With short interest in WEBR above 56%, this was a somewhat mild but good-old fashioned short-squeeze. The signs were certainly there; the combination of a rising short-interest ratio (it was at 39.5%) combined with one another factor convinced me that that it would only be a matter of time.
That other factor was something I experienced first-hand, due to the fact that part of my WEBR position has been loaned out via a securities lending program.
When you loan securities it is because someone else needs to borrow them in order to make a short sale. There is a cost to do this, which you, as the lender, reap. When the loan rate changes, you are notified. The rate rose from 12.5% last February to 24% the following month, before falling to 10.5% in late April. By early May, the securities were returned to my account, and it seemed as though the potential short-squeeze was averted.
Just three weeks later, my WEBR shares were borrowed again, at 12.5%, then quickly returned. Days later, they were borrowed once again, at 15.5%, and the following day, the rate shot up to 19.5%, where it currently stands.
The question now is whether the squeeze will continue, with WEBR up 28% the past two days.
Truth be told, I did not take a position in WEBR due to the potential for a short-squeeze, but rather as a long-term hold of a solid brand name that became a busted IPO. WEBR went public last August at $14/share, and briefly rose to $20, but its been all but downhill until the past couple of days.
WEBR currently trades at 32x next year's consensus estimates, and yields 1.6%.
It may be an interesting ride from here.