These Real Estate Stocks Might Get Short-Squeezed Too
A number of real estate-related stocks besides retailer GameStop Corp. and AMC Entertainment have the potential to attract the attention of retail investors looking to disrupt other investors, typically hedge funds, which are shorting those stocks.
They include retailer Bed Bath & Beyond, mall owners Macerich Co. and Tanger Factory Outlet Center, and department store chains Macy's and Dillard's, according to MarketWatch. A lot of investors are in short positions on those stocks and would be at risk of racking up losses should their value temporarily balloon, as in the case of GameStop and AMC.
Shorting stocks is a common investment strategy whereby an investor borrows stock and then sells it immediately. If the price drops, the investor buys the stock back and returns it to the lender, keeping the difference. In essence, it is a way to bet against a particular stock.
When stock valuations were falling early in 2020 in response to the onset of the coronavirus pandemic, investors shorted a number of real estate stocks. The number of investors betting against REITs, especially retail and hotel owners, spiked in February and March and continued afterward in some cases, though many stocks bounced back somewhat in the summer.
As a retail operation, GameStop's model is considered increasingly obsolete, like video retail stores before it. Thus major investors, including hedge funds, have been betting against it. Day traders on a Reddit forum called r/WallStreetBets took note of that and started buying, driving the stock up and inspiring losses among those with short positions: a "short squeeze."
Though less dramatic, AMC, which has been beaten badly by the pandemic, went through a similar experience.
As yet, no short squeeze has happened to the aforementioned retail or real estate stocks. Bed Bath & Beyond stock has barely moved over the last five days, while Macerich is down slightly over that period and Tanger is up slightly. Macy's is likewise up a bit since last week, while Dillard's is down a bit. None of the stocks have yet moved with the spectacular gyrations seen by GameStop or the somewhat more measured but still volatile movement of AMC.
Yet those companies all have poor recent performance in common with GameStop because of the pandemic, ailing business models or both. Bed Bath & Beyond has closed stores, Macerich and Tanger have been buffeted by the same forces that affected most mall owners, and department store sales have been headed nowhere but down in recent years.
Though it still has about 5,500 locations, GameStop has closed more than 1,000 during the last two years and plans to close more.
Out of the last 11 quarters, GameStop sales have fallen during 10 quarters as consumers turn online rather than to physical stores to buy games, The Washington Post reports. Even as the pandemic has benefited the video game industry, with people home more often and with more expendable time for games, GameStop hasn't enjoyed any growth.
“The stock price is zooming in one direction, and the fundamentals are going the opposite way,” Loop Capital Markets senior research analyst Anthony Chukumba told the Post. “Mark my words: This will end badly."
As for AMC, management expressed pessimism last year about the company's survival, though it has managed to soldier on into 2021. Last week, the company took the opportunity to raise more cash by issuing $304M of new equity, The Real Deal reports.