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Why Skillz Is Soaring today

By Rich Duprey – Oct 25, 2021 at 11:56AM

Key Points

  • Investing guru Cathie Wood purchased a large tranche of Skillz stock late last week.
  • The esports gaming platform is a heavily shorted stock with nearly a quarter of its shares sold short.
  • The rising stock price may be causing short-sellers to cover their positions.

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The esports gaming platform continues to benefit from the vote of confidence it received.

What happened

Shares of Skillz (SKLZ 2.22%) were running 9% higher in morning trading Monday after the mobile esports platform got a vote of confidence from investing guru Cathie Wood, who bought a large tranche of the stock for her ARK Invest exchange-traded funds. 

So what

Skillz has been on a long downward slide with the stock losing more than three-quarters of its value after soaring to over $46 per share during the meme stock trading frenzy back in February. While there were some sharp plunges along the way, it was more of an inexorable path lower until it bottomed out at just under $8 per share earlier this month.

Video game players cheering

Image source: Getty Images.

Since then, Skillz stock has climbed nearly 40%, though at around $11 a stub it remains severely depressed. Yet that's in spite of the potential it holds. Esports is a fast growing niche in the overall gaming market and Skillz position in the real sweet spot of e-gaming, which is betting on online gameplay.

Skillz enables users to wager real money on mobile games played during tournaments and competitions and to play games with non-monetary stakes.

Now what

The esports platform remains under pressure and heavily shorted, with over 555 million shares sold short at last count. That's an amount equal to about 23% of all of Skillz shares outstanding.

That could help explain the boost the stock's price is getting as a rise in value could be causing short-sellers to cover their positions leading to the stock going up and pushing more shorts to cover. 

This might not be a short squeeze that sends Skillz stock soaring again, but it may shake out enough shorts to get shares back up to a level that's more appropriate for its potential.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skillz Inc. The Motley Fool has a disclosure policy.

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