Best Buy Co Inc. (BBY US) reported better than expected 2nd quarter earnings reversing two quarters of declining same store sales. Profits increased to $198 million from $164 million last year as domestic online revenues increased almost 24% to $835 million. Best Buy is up 19% today and 30% year to date on the news.
The S3 Relative Velocity Indicator, a measure of real-time relative change in shorting activity, has been trending upward since mid-June as short interest increased 32% to $1.2 billion. With today’s sudden price move we expect a dramatic increase of buy to covers and a reversal of the short momentum we saw in the last two months. The reversal has in fact already started, with over 1 million shares of stock borrows returned today.
Short sellers were already down 11% this year prior to today’s price spike but today’s price move added $170 million in losses to short sellers as the stock opened up $5.50 per share. If short interest returns to the $850 million level prior to the short run-up that started in June we should see $300 million more in buy to covers over the next several days.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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.