The Short Squeeze Unravels: Why these consumer stocks plunged today
Traders had targeted these stocks because they were small-cap companies with high short interest
What happened
On the fourth day of an epic short squeeze that began with GameStop and spread to other heavily shorted stocks, the surge finally seemed to be falling apart today. Traders began taking profits, and Robinhood, the no-fee brokerage popular with millennial traders, announced this morning that it would disable buying on a number of these high-flying squeezed stocks, only allowing users to close positions.
That news added to the sell-off already in progress with stocks like National Beverage, Fossil Group, and Bed Bath & Beyond. As of 11:15 a.m. EST today, National Beverage stock was down 21.8%, Fossil Group was off 37%, and Bed Bath & Beyond had lost 39.2%.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GME | GAMESTOP CORP. | 29.05 | -1.84 | -5.96% |
| FIZZ | NATIONAL BEVERAGE | 49.39 | -0.21 | -0.42% |
| FOSL | FOSSIL GROUP INC. | 1.46 | -0.03 | -2.01% |
| BBBY | NO DATA AVAILABLE | - | - | - |
So what
Traders had targeted these stocks because they were small-cap companies with high short interest, making it relatively easy to execute a short squeeze on them. As the chart below shows, all three are still up sharply this year after the squeeze seemed to peak in a surge yesterday.
All three were also highly shorted.
Pedestrians pass a GameStop store on 14th Street at Union Square, Thursday, Jan. 28, 2021, in the Manhattan borough of New York. (AP Photo/John Minchillo)
It's important for investors to understand that nothing fundamental has changed with these companies. There is no news out on any of these stocks that has driven these rallies over the last several days. The prices have been pumped by traders on Reddit to successfully squeeze out short-sellers.
But the pullback today shows that traders are beginning to take profits, meaning that these stocks could still have a long way to fall as all three of these businesses are still up significantly this year, and Bed, Bath & Beyond and Fossil Group are still in precarious positions.
Bed Bath & Beyond, the legacy home goods retailer, earlier this month reported modest comparable-store sales growth of 2% in its fiscal second quarter, benefiting from a boom in home goods sales. But despite improvements and asset sales, the company is struggling to generate consistent profits.
Fossil Group, the maker of watches, belts, and other leather accessories, has been a market laggard for several years as its core watch business has been disrupted by smartwatches and fitness trackers. The department store retailers it depends on have also struggled in recent years and have been hit hard by the pandemic. In its most recent quarter, sales declined 19%.
Finally, La Croix parent National Beverage was a market darling just a few years ago as sales of its flavored seltzer were soaring, but that led to new competition, and business cooled off. More recently, the company has benefited from a spike in grocery sales during the pandemic, which has lifted results, but it's hard to justify the recent share price gains based on the business' performance alone.
SHORT SQUEEZES: EVERYTHING YOU NEED TO KNOW ABOUT THE RECENT INVESTING MOVEMENT
Now what
Today's decline likely means that yesterday was the peak of the rally, though there's no way to know for sure. Still, if you happen to own one of these stocks, it makes sense to sell right now because over the long term, the fundamentals of these businesses don't justify the valuations.
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But anything can happen in the short term. The last few days have made than abundantly clear.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.