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Why GEO Group Is Soaring 11% This Morning

By Rich Duprey - Jun 16, 2021 at 11:13AM

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The private prison operator is the latest meme-stock fave.

What happened

Shares of GEO Group (GEO 3.82%) were running 11% higher in morning trading Wednesday as the Reddit stock trading frenzy latched onto yet another stock that's heavily sold short.

So what

There was no real news to speak of regarding the private prison operator's business, but with over 35% of its outstanding shares sold short, GEO Group has been adopted as the latest meme stock to get retail investor support.

While rallying around businesses being "unfairly" targeted by hedge funds and other short-sellers is fun, it's no way to invest and sometimes a business deserves the negative opinion held.

Inmates listening to an officer in a correctional facility.

Image source: Getty Images.

Now what

GEO Group is not in danger of going out of business, at least not anytime soon, but in the very first days of President Joe Biden's new administration, he ordered the Justice Department not to renew its contracts with private prison operators like GEO Group and peer CoreCivic

GEO Group's contracts don't begin expiring until 2022, so it has time left before any contracts it has under DOJ purview are killed off (Immigration and Customs Enforcement Homeland Security control are not affected).

Yet, because GEO Group is structured as a real estate investment trust (REIT), the fact that it suspended its dividend in April to focus on its heavy debt load means the reason most people invest in REITs has been taken away.

Yes, the business can survive and maybe the divided will be reinstated, but simply piling into a stock based on the number of shares sold short is no way to invest.



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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Stocks Mentioned

The GEO Group, Inc. Stock Quote
The GEO Group, Inc.
GEO
$7.89 (3.82%) $0.29
CoreCivic, Inc. Stock Quote
CoreCivic, Inc.
CXW
$10.11 (-1.85%) $0.19

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