ViacomCBS stock has been on an absolute tear this year, but its recent rally may have nothing to do with positive investor sentiment toward the company. Rather, retail investors might just be piling into the media giant’s stock, causing a short squeeze.
A short squeeze is when a stock is heavily shorted, and investors push the price higher by buying shares. Short sellers are then forced to start buying in order to cover their position and minimize losses as the price keeps rising.
Heavily shorted stocks were thrust into the spotlight earlier this year after the GameStop saga took the market by storm. Retail investors on Reddit flocked to names like GameStop to squeeze short sellers, and after targeting GameStop, they moved onto media names like movie theater chain AMC Entertainment.
According to data platform S3 Partners, the entertainment and media industry is the second most shorted industry in the U.S. so far this year by dollar amount — right behind software.
Investors often look to a company’s short interest as a gauge of market sentiment. Generally, if a stock has a high short interest, investors are bearish and think it is overvalued and will decline.
It’s worth noting that many investors assess a stock or sector’s short interest by looking at the short interest as a percentage of float, and while that is a useful metric in some aspects, the absolute dollar amount of short interest is a much more accurate measurement, according to S3 Partners.
Within the media industry, ViacomCBS is the most shorted name and continues to see the most new short selling over the last 30 days, making ViacomCBS a top short-squeeze candidate. AMC Entertainment and Activision Blizzard were second and third in terms new short selling over the past month.
That’s not to say there haven’t been positive catalysts, including the launch of the company’s streaming service Paramount+, but ViacomCBS’ monster run has been so wild, many investors were left scratching their heads.
As of market close Tuesday, shares of ViacomCBS surged 20% over the past five days, 162% so far this year, 218% over the past six months and a staggering 655% in the past year. Meanwhile, the S&P 500 rose a much more modest 7% year-to-date and 56% over the past 12 months.
The media industry may be the second most shorted industry this year, but that doesn’t mean it’s been the most profitable for the shorts. It is actually the worst performing industry for short investing in 2021 based on the amount of year-to-date market-to-market losses.
So far this year, the media industry saw market-to-market losses of $10.8 billion, followed by specialty retail, which dropped $9.4 billion. And even in the face of nearly $4 billion in losses this year, ViacomCBS short sellers are holding onto their positions.
But as ViacomCBS crossed $60 billion in market cap and shares inch toward $100, shorts will be put to the ultimate test of resilience in the face of mounting losses.