Peloton Interactive (PTON) beat quarterly sales estimates and raised its 2020 guidance in addition to seeing connected riders increase +94% to 886 thousand. PTON’s stock price is up over 14% on the news.
Peloton’s short interest is $582 million, 15.30 million shares shorted, 44.33% of its float.
Overall, we saw -4.12 million shares of short covering, -21.28%, over the last month, but a slight increase of short selling, +39 thousand shares, +0.26%, worth of new short selling over the last week which is probably just some minor portfolio adjustments ahead of its earnings release. PTON shares shorted have been decreasing since mid-February as short sellers cut their positions in anticipation of a Covid-19 related demand surge in its products. Recently we’ve seen shares shorted relatively flat as no new shorts have entered this name in size.
Even though shorts have been exiting their Peloton short positions, it continues to be the largest short in the Leisure Products Sector:
As of 5/6/20 close, PTON shorts had the worst performance of shorts with over $25 million of 2020 average short interest in the Leisure Products Sector, but with the stock up over +14% today, they added -$83 million of additional mark-to-market losses today, bringing their year-to-date mark-to-market 2020 losses to -$243 million, down -32.34% on the year.
PTON stock borrow rates have been at General Collateral levels (the cheapest stock borrow rate of 30 bp fee for the easiest to borrow stocks) since late April after topping 50% as recently as mid-February. We are seeing a slight increase in stock borrow costs today, with rates nearing 1.00% fee, but with shorts probably trimming their positions even more after today’s rally we should not see a return to expensive stock borrow rates. With both institutional and retail long shareholders in no rush to sell such a popular and well performing equity, lending supply should remain stable.
What will probably not remain stable is PTON short interest. PTON is up over +56% on the year and a bid\ask profile that is lacking sellers versus an abundance of buyers. The increase of long side demand is illustrated by the number of long shareholders on retail broker Robinhood’s platform doubling since April. A continued PTON rally and the associated mark-to-market losses will most certainly squeeze more short sellers out of their positions.
With short sellers and long shareholders both trying to get to the head of the pack in order to pounce on limited amount of sell orders, we should expect PTON’s price continue to climb. But, it important to see if and when short sellers begin to get active again. If the breakaway gets too far away from the pack and the stock is seen as being oversold, new short activity can put a brake on this rapid climb. But in the meantime, PTON is a prime short squeeze candidate.
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Managing Director Predictive Analytics, S3 Partners, LLC
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