While consumer-facing companies looked forward to the post-pandemic era, outdoor grill manufacturer Weber (NYSE:WEBR) might not feel the same anymore. The company delivered disappointing results for its fiscal third quarter ended June 30, missing the consensus earnings target. Ordinarily, such underperformance yields equity market losses for public firms. However, WEBR stock soared to double digits, likely on speculative trading.
Heading into Weber’s fiscal Q3 report, covering analysts anticipated that it would post a loss of 7 cents per share. Further, it forecast revenue to hit $526 million. Instead, the company posted a net loss of $7.5 million, translating to a loss of 41 cents per share. Revenue came in at $527.9 million, slightly exceeding its forecast.
Nevertheless, the overall results presented a lackluster performance. In the year-ago period, Weber posted earnings of $17.8 million. On the revenue front, the company rang up $668.9 million.
In a statement, Weber interim CEO Alan Matula declared, “Our third quarter performance reflects the margin pressures we are experiencing as a result of global headwinds in our current operating environment.”
Despite the dour report, WEBR stock popped up around 12% heading into the afternoon session. This unusual dynamic implied speculative contrarian trading may represent the culprit.
Possible Short-Squeeze Speculation on WEBR Stock
According to data from Fintel, the short interest percentage of float for WEBR stock is a staggering 55.86%. Just as significantly, the short interest ratio (also known as days to cover) is 13.27.
Essentially, contrarians have an opportunity to impose significant pressure on traders leveraging their pessimism against WEBR stock. With a sizable portion of publicly available shares held short and with average volume trends requiring over 13 days to cover all short positions, the bears must have conviction in their thesis. Otherwise, the resultant action of covering “negative” trades bodes very well for price escalation.
To be fair, attempting to force a short squeeze presents significant risks to bulls as well. Short interest implies – as is the case with WEBR stock – fundamental vulnerabilities with the underlying business. Therefore, it’s very possible that a heavily shorted equity will continue printing red ink.
Indeed, Matula admitted these vulnerabilities and presented a plan to address them. “To strengthen our financial position for fiscal year 2023 and beyond, we are introducing a comprehensive cash flow and cost management plan, which will position Weber to enhance its leadership position in a dynamic outdoor cooking market.”
It’s possible that the bulls believe in Weber’s recovery narrative though challenges linger. On a year-to-date basis, WEBR stock is down about 43%.
Why It Matters
Even before its fiscal Q3 results, Weber suffered from a searing spotlight. Amid waning demand for its products, CNBC reported last month that former chief executive Chris Scherzinger departed the company. Further, Weber suspended its quarterly cash dividend. Management stated that it is committed to working with lending partners to remain in compliance with its credit facilities.
As well, the cooking equipment maker mentioned at the time it may consider layoffs. As well, it would seek other expense-reduction initiatives, including inventory tightening. While sentiment for WEBR stock may reflect belief in this strategy, Weber likely has limited margin to disappoint shareholders again.
On the date of publication, Josh Enomoto 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.
