Many of the market's highly shorted stocks certainly merit the doubt. Some companies are obviously overselling their potential in an effort to buoy their stock's price, but investors often see right through the ruse.
Every now and then, though, a stock finds itself struggling to fight off a wave of short-selling that's entirely undeserved. That doesn't mean those bears won't drive those shares lower. It just means that weakness isn't built to last.
While it's well down from last August's post-IPO peak, Weber (WEBR) is one of these stocks that's apt to win out in the end. And that victory is likely coming sooner than later.
No appetite for Weber stock
Yes, this is the same Weber that makes barbecue grills; it also offers a variety of accessories and grilling supplies.
It's not exactly a stretch to suggest the timing of its public offering was meant to capitalize on the market's sweeping bullishness around the middle of last year. It's also not a stretch to say, however, the bears decided to specifically target Weber immediately following its IPO, when many young stocks are highly vulnerable. And it worked. From an early-August public offering price of $14 per share to a peak of $20.44 just a few days later, the stock has fallen back to a price of less than $8 now.
The tumble coincides with a wave short-selling that now leaves 41.5% of its total float sold short, according to Morningstar, although some sources indicate its short interest is even higher than that. That's huge. In fact, that makes it one of the market's most shorted names right now.
And it's not too terribly difficult to figure out what piqued so many bears' interest. Although not a new brand, as a newly minted publicly traded company, Weber's fiscal history wasn't (and still isn't) widely accessible. A few traders can also rightfully count on pre-IPO hype fading pretty quickly. Never even mind the facts that the pandemic has yet to be fully contained, and that several insiders have been shedding their shares during this 11-month stretch.
With the stock down more than 60% since August of last year, however, the bears have simply taken matters too far.
Weber's business is starting to sizzle
Don't misread the message. It's entirely possible Weber stock could start to slump again even though it's seemingly started to recover from what could be seen as a capitulatory low from May. The late-June surge, in fact, may easily mark such a pivot point. On balance though, the odds are really starting to favor the stock's buyers rather than the sellers.
Chief among these bullish tailwinds are the historical results investors can access and the analyst community's outlook.
While the professionals are expecting nearly a 13% sales decline this year largely due to a combination of logistics problems, concerns of a recession, and a massive swell of demand last year, growth should kick in again next year. Analysts are calling for top-line growth of nearly 5% in 2023, which should in turn push Weber back into the black. For 2024, both revenue and earnings are expected to increase by double digits year over year.
Data source: Thomson Reuters. Chart by author. Revenue figures are in millions.
And there's little reason to think Weber won't hit these lofty targets. Data Bridge Market Research expects the barbecue grill market to grow at a steady annualized clip of 5.1% through 2028, hitting $7.3 billion in the last year of that time frame. That outlook jibes with other forecasts from companies including Technavio and Market.us.
Weber's growth is likely to outpace the fragmented market's organic growth, however, for one simple reason: As a key brand in the business, Weber is better positioned to leverage its name and existing reach with retailers than much of its smaller competition is.
That marketwide growth outlook may also understate the industry's actual expansion potential. While it might seem as if consumers are reverting back to all their pre-pandemic norms, in at least some ways COVID-19 permanently changed people's perspectives on eating meals at home. Backyard grilling may well have become a preferred way of socializing with friends and family around a meal.
Cooking times may vary on Weber stock
If you need any new position in Weber to dish out an immediate gain, forget about it. While a massive portion of the stock's float is sold short -- leaving it ripe for a short squeeze -- short-squeeze rallies often require a specific trigger that may not yet be in the works. They also often end up unwinding just as violently as they began. This stock's going to be a coin toss for the foreseeable future as long as the short-sellers are aiming at it.
If you can stomach the volatility or if you manage a watch list of stocks that may be potential purchases in the future, though, Weber's at least worth considering here.
