What happened
Shares of technology platform ANGI Homeservices (ANGI) climbed higher on Wednesday, a day after the company released a survey suggesting homeowners are looking to knock projects off their to-do lists. For the day, shares rose 8%.
The survey results counter the conventional wisdom of investors betting against ANGI Homeservices. (Spoiler alert: There are a lot of them.) Since March, this stock has just kept climbing.
So what
ANGI Homeservices connects homeowners wanting projects done with professionals willing to do the work. Most of its revenue is generated when it connects the two parties. If homeowners aren't interested in hiring workers (perhaps because of a global pandemic), then ANGI isn't making much money. And it seems that's what people expected.
However, Pollfish performed a survey for ANGI Homeservices and found that homeowners are ready to get work done. Nine out of 10 people surveyed planned to tackle a project in 2020. And 38% intended to use U.S. stimulus money to finance it. Those survey results, if they reflect reality, suggest the economic environment for ANGI's business is healthy.
That said, were the results from the survey that good? In reality, it doesn't take much positive news to send ANGI stock higher these days. If you find 10 people on Wall Street, six are actively betting against ANGI stock -- about 60% of shares are sold short, according to data from Nasdaq.
New data showing improving trends, like this survey, can cause short-sellers to change their minds. If one decided they no longer wished to short ANGI stock, they would have to purchase shares at current market value to close their positions. But the more buyers there are, the more the stock rises.
Image source: Getty Images.
Now what
ANGI stock could be getting set up for something called a short squeeze, which happens when short-sellers cover their positions, thereby sending the stock higher. As a result, more short-sellers are motivated to close their positions.
When taking into account ANGI Homeservices stock's average trading volume, it would currently take 21 days for short-sellers to cover their positions. In the world of shorting stocks, that's a lot.
No one can blame short-sellers for changing their minds on ANGI stock, though. In reality, having an open mind is a quality everybody should have when investing in stocks. We need to have a fundamental thesis behind our investments -- whether we're long or short.
I believe in holding for the long term. But if new information becomes available that entirely invalidates our prior decision, we have to be ready to move on. Hanging on to a stock purchased with faulty reasoning can unnecessarily compound an investor's losses.
