This Could Provide Solid Support to GoPro Stock
GoPro Inc (NYSE:GPRO) stock is surging on Monday morning and part of this surge may have to do with a covert factor in play. Analysts think this could further boost GPRO stock.
GoPro has seen a massive spike in short interest in the last six months on the back of repeated soft guidance. Half of the stock’s outstanding float is currently short, which has jumped from 44% in December to 51% in January.
Speaking with CNBC, Ihor Dusaniwsky, the managing director of research at data analytics company S3 Partners, said that a short squeeze in GPRO stock may now be in the cards. (Source: “Crowded GoPro short sellers may face squeeze,” CNBC, February 4, 2016.) Dusaniwsky goes on to forewarn that institutional investors are expected to soon be covering their positions.
As of now, more than one-third of the company’s outstanding stock is held by institutions. The squeeze is certainly expected to be significant.
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Shorting occurs when traders speculate a stock to tank and sell the stock ahead of the fall by borrowing it from the market. If they hit the bulls eye with their speculation, they get to make money by buying it off of the market for cheap and delivering it to their lender.
The flip side of the coin is a short squeeze. Should the speculation go wrong and the stock spikes, the short sellers are forced to buy the stock at inflated prices from the market. When a lot of short sellers hit the market to cover their positions, the high demand for the stock further pushes up its price.
GoPro stock is currently trading at a discount in excess of 84% from its summer highs of 2015. However, the predicted short squeeze can help cover some of these losses in the coming days.