Short-sellers love Groupon

Betting against the stock was finally allowed to begin this week, and traders have jumped in with enthusiasm.

By Kim Peterson Nov 11, 2011 3:15PM
Groupon (GRPN) has quickly become a favorite of short-sellers.

There is strong demand to borrow the stock and bet against it, Bloomberg reports. Shorts like to sell borrowed stock, expecting to profit by buying the shares back when the price drops.

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Nearly 100% of the shares available to be lent out were shorted, according to Data Explorers. That amounts to 5.5% of Groupon's free-floating shares.

All this interest has made Groupon one of the most difficult and expensive stocks to short. The fees have risen 22% since its company's IPO this month, Bloomberg reports. Data Explorers ranks the stock a 10, which is the most expensive level on its charts.

What kind of fees are we talking about? It's unclear for Groupon, but CNBC reported in May that people were paying 40 cents a day to borrow a share of LinkedIn (LNKD), according to Seeking Alpha. That can add up fast.

"It's hard and very expensive to short (Groupon), because almost all the shares that can be borrowed are out on loan at the highest fee," a Data Explorers spokesman told Bloomberg.

So why all the short enthusiasm? There are just too many red flags with Groupon. The business model is questionable. The number of competitors is in the hundreds in the United States alone. Marketing costs are high, and the company's spending has been a concern.

The company has all the ingredients that should give investors pause. Perhaps that's why the stock didn't rocket sky high on its first day of trading. Shares were initially priced at $20 each and rose 31% on the first day. Since then, shares have fallen back to the $24 range.

"In the short run, it's a great trade," the founder of the IPO research firm IPOX Schuster told the Los Angeles Times. "In the long run, I don't want to hold it. There's great risk."
Tags: GRPN
1Comment
Nov 13, 2011 7:02AM
avatar
Man it seems like the only thing these people know how to do is bet against something then get online and tell everybody how bad things are till they drive the price of everything down.By the way anybody hear of Nevada Gold UWN ? They are a gambling outfit with a lot of potential. A stock scouter 4 with sales up 118% income up 89% and just bought out AG Trucano one of,if not the largest operater of slot machines in Deadwood SD.Thats 904 slots in 20 locations just there,They already own gaming facilites in Colorado and Washington They are losing 0.01 a share right now with a Beta of 0.89.Selling now for around 1.59 with a 52 week high of 5.31.They are spending money on buing up other groups and this makes some of their numbers look rough but you have to spend money to make money.Gambling never goes away as a matter of fact I belive in hard times we gamble more.Founded in 1977 bassed in Houston TX Anyway check it out for yourself
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