Geo Group Is a Short Squeeze Target and a Good Contrarian Play

It’s unfortunate that Geo Group (NYSE:GEO) gets unfairly labeled and pigeonholed sometimes. For one thing, some folks assume that GEO stock is just another meme stock to be manipulated by amateur traders.

Image of the Geo Group's logo on a sign outside of a corporate building
Source: JosephRouse /

At the same time, the company tends to be categorized as nothing more than a “prison company.” That’s misleading, though, as Geo Group provides a valuable service to the community and doesn’t just lock people up.

Many GEO stock traders probably don’t realize that the company’s primary business is providing “leading, evidence-based rehabilitation programs to individuals while in-custody and post-release into the community.”

So, we’re going to clear up some misconceptions today, and perhaps even bolster the bull thesis for a company that’s sometimes hated, but mostly just misunderstood.

A Closer Look at GEO Stock

The first thing that slaps me in the face about GEO stock is its incredibly low valuation.

It’s not every day that you see a multiple like this. On a trailing 12-month basis, Geo Group’s price-earnings ratio is just 5.8.

In a time when so many index funds are trading near their all-time highs, GEO stock is a value investor’s needle in the proverbial haystack.

On the other hand, the stock has absolutely plummeted from its 2017 peak of $33 and change.

Of course, it didn’t help the Geo Group bulls when President Joe Biden ordered the U.S. Department of Justice to end the use of private prisons. Plus, in April the company announced that it was suspending its quarterly dividend payments. That frustrated many of the long-term investors, no doubt.

So, I’ve provided you with some good news and some bad news. For me, the ultra-low P/E ratio makes GEO stock hard to resist.

But even beyond that, there are reasons to consider an investment today.

CEO Buy-in and Reddit Run

According to InvestorPlace contributor William White, Chairman and CEO George Zoley made a sizable addition to his holdings of Geo Group shares.

Specifically, Zoley picked up an additional 166,644 shares of GEO stock, according to a recent filing with the U.S. Securities and Exchange Commission (SEC).

Now, you’ve got to admit, this is a sign of confidence in the company.

Corporate insiders dump shares for a number of reasons, but they typically wouldn’t buy them unless they’re optimistic.

White also reported that Reddit users may have targeted GEO stock for a short squeeze.

And indeed, when the share price ran up from $6 to $9 in a few days in June, this could have been the result of a Reddit run.

I can’t prove that Reddit users were involved, but there doesn’t seem to be any other explanation for the rally. I mean, it’s not as if Biden suddenly changed his mind on private prisons or anything like that.

Recognizing the Challenges

Zoley, in my opinion, deserves credit for acknowledging the current challenges that his company is facing.

“We recognize that heightened political rhetoric has created concerns regarding our future access to financing, and recent federal policy actions have resulted in the non-renewal of some of our contracts,” Zoley said.

In order to address those challenges, Zoley and Geo Group will concentrate on debt reduction, deleveraging and internally funding growth.

If the company can stick to that plan, the results might surprise the skeptics.

For fiscal year 2021, Geo Group expects to generate $2.23 billion to $2.25 billion in revenues.

So clearly, the company’s insiders remain confident despite the issues that Zoley cited. The challenges will likely persist for a while, but at least there’s hope on the horizon.

The Bottom Line

There’s no denying it: Geo Group has problems that it must overcome.

Yet, there are also opportunities here as the stock’s been beaten down and the valuation is uncommonly low.

And with the corporate insiders apparently very confident, Geo Group may be due for a turnaround in 2021’s back half.

On the date of publication, David Moadel 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 Publishing Guidelines.

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