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Why Houghton Mifflin Harcourt Stock Was Up Again on Friday

By Jon Quast – Oct 2, 2020 at 1:38PM

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On Thursday, the company got a boost from its restructuring announcement.

What happened

Shares of educational materials company Houghton Mifflin Harcourt (HMHC) are on the rise Friday. As of 1:15 p.m. EDT, the stock was up by 23.8%. One might expect some substantial news would be driving a move like this, but in reality, things were quite quiet. 

Instead, the day's upward move appears to have been a continuation of Thursday's rise, which was cued by the company's announcement of some significant structural changes to its business.

A row of wooden blocks are stacked sequentially taller and topped with upward pointing arrows.

Image source: Getty Images.

So what

While it's impossible to say for sure what was causing Houghton Mifflin Harcourt stock to climb further Friday (since there was no new news), looking at the company's short interest suggests a reason. Shorting a stock is an active bet against it. If short-sellers are wrong and the stock goes up, they can be pressured to close their positions and move on. Since that requires them to actually purchase the stock, it can cause the price to rise further, at least in the short term.

Houghton Mifflin Harcourt stock is listed on the Nasdaq exchange, which provides data regarding short interest. According to Nasdaq, short interest in HMH stock is almost twice as high now as it was back in June. Granted, it's not a lot of short interest. According to Yahoo Finance, it's only about 7% of the float -- not typically enough to cause a short squeeze. But there's a lot of new short interest.

Since the company's share price has sunk in 2020 to penny stock levels (below $5 a share), it doesn't take much to move it higher. On Thursday, the company announced it was shifting gears to become a more digital-centric company, which aligns with macro-trends in education. Perhaps that was enough to cause some short-sellers to rethink their positions. 

Now what

As already mentioned, Houghton Mifflin Harcourt is restructuring its business. It's laying of a large number of its workers, and moving its focus from physical products to digital learning materials. These moves are an attempt to reignite growth by aligning with the evolving needs of educators.

Jon Quast owns shares of Nasdaq. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

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