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Why Is National Beverage Surging 27% Higher Today?

By Rich Duprey – Jan 27, 2021 at 12:27PM

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Shares of the owner of La Croix sparkling water are showing some fizz of their own.

What happened

Shares of National Beverage (FIZZ 0.82%) are soaring 27% higher heading into midday trading Wednesday, seemingly making it the latest stock to catch short-sellers in a squeeze.

So what

Although National Beverage's 52% gain so far in 2021 is no match for the stratospheric rise in GameStop's (GME -1.25%) shares, which are up 685% year to date, the owner of La Croix sparkling water is also a heavily shorted stock with nearly two-thirds of its shares outstanding sold short.

Bottle of champagne exploding

Image source: Getty Images.

Now what

The short interest ratio in National Beverage, or the number of days it would take short-sellers to cover their position, is a hefty 27 days (anything over seven days is considered a lot), which suggests short-sellers are being squeezed.

A squeeze occurs when a rise in the stock price leads short-sellers to buy back their shares at higher prices, fueling a further rise in the stock price, which causes more short-sellers to cover their positions.

In GameStop's case, prominent short-sellers have finally cried uncle and have completely abandoned the stock. Noted short-seller Andrew Left of Citron Research told YouTube viewers yesterday he had covered his position at "a loss of 100%."

That might not happen with National Beverage, but as old short-sellers get squeezed out, because the monumental jump in the price of the stock is not based on fundamentals, new short-sellers might end up coming in.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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