What happened

Shares of SunOpta (NASDAQ:STKL) rose again on Tuesday even though the natural and organic food company didn't report any news. The stock closed the day up 9%, but had traded up by as much as 18% in the session.

I suspect short-term forces are at work. Earlier this year, the stock was 10 times more shorted than it is right now, with less than 1% of shares sold short. As the shorts exited, SunOpta stock recovered. However, now that it has roughly quadrupled from its lows, it has attracted the attention of day traders who are content to ride the hot shares higher.

STKL Chart

STKL data by YCharts

So what

SunOpta stock fell steadily in 2019, as the company reported declining revenue and a net loss. The company, which markets foods under the Sunrich, Sunrise Growers, and Arbor brands, only had $1.5 million in cash, and had a long-term debt load of $242 million -- very high for a small-cap company. That combination attracted a fair number of short-sellers.

According to data from Nasdaq, 1.8 million shares of SunOpta were sold short at the end of February -- right as the market started to crash. However, SunOpta provided a business update mid-March, showing that its products were in relatively high demand. It announced it expected quarterly revenue of $320 million to $340 million -- good for 5% to 11% growth year over year. 

Short-sellers fled. By the end of March, less than half a million shares were short. That trend has continued: The most recent data shows just 179,000 shares are short -- a 90% reduction in short interest in just 2.5 months. 

In May, when SunOpta finally reported results for the first quarter of 2020, revenue came in at $336 million, up 10% year over year. Its plant-based food and beverage segment, from which it generated around 31% of its 2019 revenue, showed particularly strong growth: Revenue increased 31% year over year to $106 million. 

A businessman rides a rocketship with cash exhaust over a multi-colored bar chart.

Image source: Getty Images.

Now what

After SunOpta's upbeat update scared off the short sellers, the stock apparently attracted the attention of day traders. Talk of filling gaps, breaking resistance, and forming candles dominate trading platforms. But these "technical analysis" subjects are outside the scope of my experience.

For investors focused on the long term, here's what I would watch for now. SunOpta reported growth, but it's still highly leveraged. However, in Q1, it had operating cash flow of $35 million, allowing it to reduce its total debt by $20 million from the end of 2019. That's because its plant-based segment is also its most profitable. It's a favorable trend if SunOpta management makes smart capital-allocation decisions going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.