This week’s list of likely short-squeeze stocks is interesting, as Redbox (NASDAQ:RDBX) sits at the top of market analytics platform Fintel’s weekly leaderboard. But just a few spots below is Chicken Soup for the Soul Entertainment (NASDAQ:CSSE), the company that recently acquired Redbox. News of the acquisition sent RDBX stock down as retail traders reacted disapprovingly. Although short attention has kept it mostly elevated since, shares are down again today.
RDBX stock began the day by slipping, and it hasn’t stopped since. As of this writing, it is down 13% for the day and has shown no signs of a rebound. Meanwhile, though it has been falling, CSSE stock has been slowly trending upward. Despite some early turbulence, it was up 1.3% at one point today.
Redbox has been a popular name among short-squeeze speculators since before the deal. Chicken Soup for the Soul Entertainment flew under most experts’ radars until it announced plans to acquire the DVD rental provider. The impact of RDBX stock on CSSE shares merits a closer look.
RDBX Stock and Its New Partner
Last week, RDBX stock topped Fintel’s short-squeeze leaderboard as well. While it hasn’t moved, CSSE stock has jumped eight places from its previous ranking. The latter boasts a significantly lower short-squeeze score, finishing with 97.96 points compared to Redbox’s 99.85. That is to be expected, given the latter’s status as a longstanding short favorite and its higher short float percentage.
When CSSE first announced its acquisition of Redbox, some experts regarded it as a “takeunder deal.” But as InvestorPlace contributor Thomas Niel noted, it also had the potential to take CSSE stock from a microcap play to a moonshot:
“Redbox’s loss could be a gain for existing holders of CSSE stock. The deal could create $40 million in annual cost savings. Combined with the growth of its existing business, the company could see a big improvement in its profitability. That may be enough to rocket shares higher.”
What experts didn’t expect was for CSSE stock to rise on short interest after it acquired a popular short favorite. But that may be exactly what is happening. Redbox is still a favorite among short sellers, but it has proven volatile to the point that some may have shifted focus.
Two weeks ago, RDBX stock began to fall amid speculation that investors were losing interest. From then, it rose slightly only to decline again. The stock remains in the green for the month, but its gains have only slightly outpaced those of its new owner.
What Comes Next for Redbox
In late May, Niel predicted that if the merger worked out for anyone, it would be CSSE investors. He expects RDBX stock could “see a near wipeout.” While that hasn’t happened yet, it certainly seems likely. Short interest can’t carry a stock forever, and interest in Redbox will inevitably cool. When it does, RDBX stock will be left with nowhere to go but down.
CSSE stock likely won’t stay a short favorite after Redbox interest flatlines. The company should enjoy the ride while it can.
On the date of publication, Samuel O’Brient 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.