Investors Shorting SolarCity Corp. (NASDAQ: SCTY) Stock

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By Lisa Bradley on July 17, 2014 Energy & Solar

A month ago in mid June, there was rising interest in shorting SolarCity (NASDAQ: SCTY) stock. Over the next few weeks, the prices of the shares of the solar energy company rose almost 50%, although recently they have come off of their high streak. At the end of June, stock prices sharply increased again, short interest jumped to a new high again.

There are many reasons why the potential for a short squeeze is extremely high at this point in the game.

Around the middle of May, just over 12.3 million shares were short, which made up more than 24 percent of the total number of stocks being traded. These figures are already very high, but by mid June, the short interest continued to rise even higher. By the end of June, there were an additional 2 million shares that were being shorted, bringing the total to over 14.28 million shares by the end of the month.

Since the start of 2014, the interest in shorting the company’s stocks had increased by more than 121%. If you were to look back even further, the short interest has risen by over 463% since March of 2013. At that time, a bit more than 2.5 million shares were being shorted.

According to Yahoo! Finance, 51.68 million shares were in the float, meaning that 27.6% of the float was being shorting in late June. The float figure had increased, but the short interest did not rise enough to match it. The percentage of flat short continues to increase, making a short squeeze more and more likely.

Rise and Fall of SolarCity’s Acquisitions

Before SolarCity announced that it would purchase Silevo, their stocks traded at a price less than $50 at the lowest. After the announcement of Silevo and its plans to build a plant in New York with a capacity of over 1GW, the alternative energy company’s shares rose more than $10 to $64.53.

That day, June 17^th, SolarCity traded over 24 million shares, setting a new record for the company. The next day, the company traded 18 million shares, setting the record for the day that traded with second heaviest volume of shares for the company. This stock trading boom endured until the 2^nd of July, when shares maxed out at $76 per share. Since then, the price of shares have fallen to $65.78.

Despite the rise in price of shares during the month of June, short interest in the solar energy company rose. Now, as over 25% of the float is short, the possibility of the short squeeze will inevitably increase. If the company released positive quarterly reports, it is very likely that a short squeeze will actually occur.

According to JPMorgan Chase & Co. (NASDAQ: JPM) in its research report, SolarCity’s target price for its shares was increased from $72 to $77 – a 17.8% increase from the company’s latest closing price.

The solar energy company expects $299.9 million in revenue this year, which is an increase of 83% year over year. The company also reported that it expects gross margins to increase to 33.6% from 24% the prior year. Due to expansion related expenses for this year, SolarCity predicts its net loss to increase to $338.3 million from $151.8 million last year.