At the end of January, a kind of culture war broke out on the stock exchanges. Countless private investors joined forces in the fight against short-sellers on Internet forums - first and foremost on the "Reddit" portal. With concerted actions, they triggered price rises in companies where the proportion of shares sold short is particularly high. At the epicenter of the so-called trader flash mob was GameStop. The video game retailer's stock soared more than 1500% in January. At the same time, the stock reached a historic volatility of a whopping 472%. The turmoil has rocked billion-dollar hedge funds and, with them, the stock market as a whole. Even the White House is alarmed, with a spokesman saying the situation is being closely monitored by the US Treasury.
Among the stocks that got caught in the maelstrom of GameStop's rally was iRobot. In the meantime, the share price of the maker of fully automated vacuum cleaners nearly doubled in the last week of January (see chart). A look at the short interest published by the US technology exchange NASDAQ makes the direct link to the flash mob traders clear. As of mid-January 2021, 10.5 million shares of iRobot had been sold short (see chart). This represented more than one-third of the shares outstanding. According to NASDAQ, iRobot's average daily trading volume is just over half a million shares. It would therefore take more than 20 trading sessions for the short sellers to close out their positions. Against this backdrop, the possibility of a "short squeeze" is not out of the question. Nevertheless, it is difficult to say whether the recent price spikes were already (partly) caused by buy orders from short sellers or whether pure speculation was behind the rally.
What is certain is that the company's fundamentals have been pretty much drowned out in the recent turmoil. Investors will find out how iRobot's business fared at the end of 2020 on February 10. In Q3, the Massachusetts-based company had posted revenue growth of 43% to USD 413.1 million. Especially in the States, people wanted to spend less time than ever vacuuming and mopping their floors. In the domestic market, revenues increased by three quarters. At $2.58, non-GAAP net income per share was up 72% from the profit in the year-ago quarter. "We expect strong results for the full year 2020," CEO Colin Angle said in presenting the interim report. Revenue, gross margin, operating profit and earnings per share were expected to exceed initial targets. The CEO also attributed his confidence to recent innovations. In the 3rd quarter, iRobot had introduced, among other things, the Roomba i3 and i3+ models - both take care of vacuuming the floors independently, including automatic emptying, and can be monitored and controlled via smartphone app.
It remains to be seen whether Wall Street will actually set its sights on the facts again by the payday or whether the "flash mob" will continue to dominate. In this respect and due to iRobot's high volatility, structured products could be an interesting alternative. As the underlying for two new Softcallable Barrier Reverse Convertibles, the stock offers impressive coupons: In the product currency CHF, the guaranteed payout is 17.00% p.a., while the USD version yields 100 basis points p.a. more. The barriers in each case are a low 49% of the initial fixing. As long as iRobot does not fall to or below this level during the 12-month term, the maximum return is fixed. Otherwise, the stock would have to turn upward and reach at least the initial price by the final fixing to avoid discounts on redemption. Please note: Due to the soft callable feature, early redemption of this issue is possible.
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