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AUG 2, 2016

S3 BLACKLIGHT: GrubHub Short Interest & Price Are Up – Will Volatility Follow?

Food delivery app market leader GrubHub Inc’s (GRUB US) short interest averaged under $350 million in 2015, ending the year at $550 million. Even with GRUB’s stock price up 24% this year, short interest continues to grow. Short interest topped $800 million for the first time last week and is up 50% for the year.

Shorts continue to increase their positions even as analysts continue to upgrade their recommendations; GRUB’s stock price has broken through its 50, 100, and 200 day moving averages in late May; Elliott Wave Theory projects a $31+ target price; and the company continues to be talked about as an acquisition target.

Short interest has increased by $109 million, up 15%, to a total of $832 million since the end of May. We are seeing our 7 Day trend line dropping slightly as there have been some buy to covers last week, but both the 30 Day and 90 Day trends are still moving upward. With 3-5 million shares of borrowable stable stock left on the street any short sellers in size will begin to have problems getting their trades executed.

With supply dropping so severely borrow rates have started to climb. The cost to borrow GRUB shares today is in the mid 2% fee level and will jump into the 3% fee range by the end of the week if demand increases.

If investors continue following analysts buy recommendations (there are no sell recommendations) and drive GrubHub’s stock price up and squeeze the shorts, we may see a surge of buy to covers which would drive GrubHub’s price even higher at an accelerated rate. This might explain why GRUB call option interest is at unusually high levels recently – investors buying cheap volatility early in hopes of a short squeeze.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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