Groupon: The Big Short?

Short sellers flocking to GRPN shares

   

Groupon Logo 200x100 Groupon: The Big Short?Over the past few months, short sellers have scored some big trades on high-profile companies like OpenTable (NASDAQ:OPEN), Netflix (NASDAQ:NFLX) and, most recently, Green Mountain (NASDAQ:GMCR).

So what to target next? Well, according to a report in the Financial Times, it looks like short sellers are getting aggressive with Groupon (NASDAQ:GRPN). In fact, it appears that investors have borrowed all the available shares!

Now this is not particularly tough. After all, Groupon only issued 5.5% of its outstanding stock in its recent IPO. If anything, it’s this tight supply that has allowed the company to achieve a nose-bleed valuation (at more than seven times projected sales for 2012).

But short sellers realize that the small float will mean lots of volatility. This certainly was the case with other IPOs like Pandora (NYSE:P) and LinkedIn (NYSE:LNKD). Short sellers likely made tidy sums with the multitude of downward moves in these stocks.

Essentially, Groupon is becoming a play thing for high-speed traders, who are betting there will be plenty of rumors and other buzz to move the stock around. Let’s face it — Groupon soaks up media attention.

Individual investors should be wary of jumping in, as this is a dangerous play. If the stock spikes — which could easily happen — you probably will sustain a big loss when you have to cover your position. With a tight float, the result could be a painful short squeeze. Keep in mind that short sellers need to buy stock to cover their positions — which puts even more upside pressure on the price.

Besides, right now, it’s probably pretty tough to even find shares to borrow for a short sale.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/groupon-grpn-short-sellers/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.