Short Squeeze Favorite Redbox (RDBX) Stock Falls 15%

  • Redbox (RDBX) plunged 17% today on what appears to be a mean reversion trade.
  • Speculators buying into the short-squeeze thesis for RDBX stock appear to be getting squeezed themselves.
  • That said, with a pending buyout at a higher price, perhaps now is the time to buy the dip.
RDBX stock - Short Squeeze Favorite Redbox (RDBX) Stock Falls 15%

Source: Jonathan Weiss /

Investors in Redbox (NASDAQ:RDBX) and RDBX stock may be asking today — what’s the opposite of a short squeeze?

That’s because despite being the #1 short-squeeze stock on Fintel’s list of top short-squeeze opportunities, RDBX stock is in free fall today. At the time of writing, shares of this DVD kiosk company are down more than 17%.

This drop appears to be related to an old-fashioned mean reversion trade. After surging from around $2.50 per share in mid-May to more than $17 per share in mid-June, investors who participated in this upside appear keen on taking profits. Those who got in late are selling in fear of downside momentum. Everyone else appears to be on the sidelines, watching it happen.

Now, investors are faced with a Redbox trading south of $7 per share. The question is, can momentum be regained? And if so, how much lower can Redbox go before short-squeeze enthusiasts jump on this trade again?

Is the Short Squeeze Over for RDBX Stock?

Short squeezes are extremely exciting events that are particularly fun to watch, but nerve-wracking to be a part of. Investors can get the long-term thesis right on a stock and be very wrong in the near-term. So wrong, in fact, that a small short position can quickly turn into a loss which must be covered, with the vast majority of a long position dissipating in a short amount of time.

With high-volatility swings to the upside in certain highly shorted stocks comes momentum. This can drive further retail interest in a given company, forcing some short positions to close. As long as momentum remains heavy on the buy side, upward pressure on a stock can result in periodic surges much higher than a company’s underlying value. Such is the case with Redbox.

Redbox is set to be acquired by Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) for $375 million. At today’s valuation, Redbox is now trading at a market capitalization of approximately $326 million. Accordingly, perhaps this selloff is overdone.

That said, we’ve seen some rather large near-term volatility with RDBX stock for some time. This ride may not be over. Thus, those considering buying Redbox on this dip may want to be prepared for some near-term chop.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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