Shares of Mullen Automotive (NASDAQ:MULN) are resiliently up by more than 8% today, while both the S&P 500 and Nasdaq 100 are down by about 1%. Meanwhile, the cost to borrow (CTB) fee of MULN stock currently sits at 116.87%, down from 379.78% compared to yesterday. The CTB fee peaked at 742.53% on Jan. 3, rising more than 8,000% from the figure of 8.55% on Dec. 23.
According to The Street, “The common range of borrow fee rates is 0.3% to 3% per year. However, when there is high demand for a short sale target, it’s not uncommon to see borrow fees exceeding 20%.”
Based on the most recent data, MULN carried an elevated short interest as a percentage of float of 43.5% on Dec. 15. That’s equivalent to 161 million shares shorted with a value of $50.59 million.
A high CTB fee and short interest factor well into the argument for a short squeeze. As short seller demand increases, lenders must charge a higher CTB fee for shares. At the same time, short sellers who already own a short position may cover their position due to the high fees. This could ultimately lead to a higher price for the electric vehicle (EV) stock.
Meanwhile, shares of MULN have increased by more than 50% over the past five trading days. So, is the short squeeze already over?
Is the MULN Stock Short Squeeze Already Over?
It’s difficult to predict when a short squeeze has completed. Based on today’s price action and relative strength, it appears the squeeze is currently in process. Meanwhile, MULN has catapulted itself into meme-stock status during the past year, which implies positive retail sentiment. A short squeeze and retail buying spells higher prices for Mullen.
At the same time, MULN has undergone heavy dilution in the past year. With more shares on the market, the effects of a short squeeze will be reduced and harder to achieve. What’s more, authorized shares could increase to 5 billion from 1.75 billion pending shareholder approval at Mullen’s special meeting of stockholders on Jan. 19.
In the end, investors should invest in companies based on solid fundamentals and a plan for long-term success and not on the prospects of a short squeeze. Whether MULN stock satisfies those conditions is a conclusion that should be made by the individual investor.
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On the date of publication, Eddie Pan 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.
