Helbiz (NASDAQ:HLBZ), a money-losing scooter rental company based in New York, is investigating naked short selling in HLBZ stock after a squeeze against the shorts doubled its price over the weekend.
Helbiz became a penny stock after losing many times its revenue for several quarters. Yet shares that were trading at 12 cents each jumped to 36 cents early on Jan. 20 and were still trading at 30 cents per share when the market opened on Jan. 23.
Helluva Business
How bad are things at Helbiz? Over the first nine months of 2022 the company lost $65 million on revenue of just $11.5 million. Operating cash flow was a loss of $34.5 million. There was just $3.5 million in cash on the books at the end of September.
The company sought to address this by merging with Wheels, a scooter maker that is active in California. The company is also leaving unspecified “unprofitable markets,” which it says are “characterized by a lack of robust regulatory frameworks, high levels of competition, an oversupply of vehicles, and overcrowded streets.”
Given the financial condition, a market cap of nearly $45 million makes no sense. But that’s what the stock traded for at the end of last week. What makes less sense is that some traders on social media are alleging CEO Salvatore Palella thinks he can get the price of the stock to $1.
Palella “will meet with third parties that have indicated interest in working with Helbiz to resolve the potential short selling issue.” That’s referring to Verb Technology (NASDAQ:VERB), a sales app company based in Utah, and Genius Group (NYSEMKT:GNS), an education technology company based in Singapore. Both are demanding action against the shorts. Genius stock rallied after it appointed board member Timothy Murphy, a former FBI official, to lead an investigation into the practice.
What Happens Now for HLBZ Stock?
Short selling is not illegal, and traders are already punishing those who went into short trades on these stocks. But short sales and short squeezes make price discovery difficult, and thus make it difficult for public companies to operate.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Dana Blankenhorn did not hold (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.
