Are Reddit’s retail investors fueling gains in shares of GEO Group (NYSE:GEO)? The price of GEO stock is up more than 16% in the past five trading days as it tries to claw back declines seemingly triggered by President Joe Biden’s efforts to eliminate the federal government’s use of privately operated criminal detention facilities.
In the last 24 hours, the chatterati on r/WallStreetBets have been diligently seeking the next short squeeze play, and they may have found it in GEO stock. The telltale signs indicate short interest is at 34.5%, 116.8 million shares are in the float and 121.63 million shares are outstanding.
Social media sentiment and mentions on the ticker have spiked today. GEO stock is up more than 7.3% in pre-market trading.
Retail traders are continuing to target short-squeeze stocks in an attempt to push out hedge funds and make a tidy profit all at the same time. Reddit in particular is a fan of going after short-squeeze stocks. We typically refer to these as meme stocks, and they can experience quite a bit of volatility. While there’s no guarantee Reddit will go after stocks with high short interest, they are likely targets.
GEO Stock Investors Hit With Dividend Cut
A number of stock pundits have in recent weeks put GEO Group on their watch lists for bankruptcy. The company suspended the stock dividend. Standard & Poor’s downgraded the credit rating into junk territory. Options traders have been stocking up on bearish puts.
That downgrade came as creditors were reported to be expecting Geo Group to negotiate a maturity extension on its 2024 term loan or an exchange of its unsecured 2026 bonds for longer-dated notes.
Biden signed an executive order to phase-out federal contracts with private prison operators in January. That move turned up the heat on Geo and its ilk. Institutional investors are increasingly unwilling to hold shares of private prison operators due to environmental, social and governance concerns. Several major banks including Bank of America and Barclays have pledged to stop lending to the operators.
All the bad news should normally make for short-selling opportunities by hedge funds. And that’s where Reddit’s retail investor community usually jumps in.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor. His Substack newsletter, TLV Strategist, covers the Israel business scene.