Mullen Automotive (NASDAQ:MULN) stock opened the New Year higher by over 10% as its cost to borrow fee continues to soar higher. As of this morning, several financial websites reported that the cost to borrow MULN was a staggering 742.5%. The total amount of shares available to short differs across these websites, ranging from half a million to one million.
Fintel reports that the cost to borrow fee was just 8.55% as of Dec. 23, which means that the fee has increased by over 8,000% since then. That is very much out of the ordinary, as Finance Train reports that the average cost to borrow fee is o.3%.
Meanwhile, MarketBeat reports that there were a total of 161 million shares sold short as of Dec. 15. That’s equivalent to a short interest as a percentage of the float of 43.5%. Furthermore, that certainly seems high enough to drive a significant short squeeze.
So, what exactly is going on?
MULN Stock: Cost to Borrow Continues to Accelerate
A rising cost to borrow fee signifies that short seller demand in a particular stock is increasing. As the number of available shares to short declines, lenders must charge a higher cost to borrow fee in order to keep up with demand. In addition, cost-to-borrow fees may also be used as a factor in the risk/reward scenario for traders. With a higher fee, traders must be more confident in their chances to emerge profitable. S3 Partners analyst Ihor Dusaniwsky explained:
“An increase in stock borrow rates may force (squeeze) some short sellers into closing their positions — getting out to realize their remaining mark-to-market profits and exiting before other buy-to-covers drive the stock price up.”
There are a number of reasons why short sellers may be eyeing MULN. First, Mullen disclosed on Dec. 29 that it was unable to file its annual Form 10-K for the fiscal year ending Sept. 30, 2022. The electric vehicle (EV) company explained that it is “awaiting a final valuation of certain of the Company’s warrants to complete the preparation of its consolidated financial statements.”
Second, MULN is currently in noncompliance with Nasdaq’s listing standards due to a bid price below $1. The company has until March 6 to achieve a price of $1 for ten consecutive days. Nasdaq may provide Mullen with another 180-day extension if the $1 mark is not met by then.
Finally, the low trading price of MULN may cause the company to enact a reverse stock split, which generally carries a negative connotation among investors.
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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.
