Nikola Short Squeeze Could be Coming Very Soon, Says S3 Partners

Shares of Nikola reversed a declining path on Wednesday after short selling activity increased as the electric truckmaker faces allegations by Hindenburg Research that the electric truckmaker misled investors about its business prospects. The stock advanced 2.2% in Wednesday’s extended market session after closing 1.4% higher.

According to a research report by financial analytics firm S3 Partners, shares shorted have increased by 1.34 million shares, worth $43 million, over the last week, since the Hindenburg report was published on Sept. 10. Short interest on NKLA (NKLA) was at $387 million, or 8.69% of its float. The stock has plunged 22% over the past week.

The short seller’s report claims that Nikola is an “intricate fraud built on dozens of lies”. In response, the electric truckmaker issued a lengthy statement to set the “record straight” on the “false and defamatory” report.

“We will probably see a short squeeze in NKLA very soon if its stock price continues to shrug off bad news and climb on good news but at the moment the short squeeze is just sitting at the top of the hill and building up potential energy,” Ihor Dusaniwsky, managing director at S3 said.

The data showed that over the past month shares shorted have declined by -1.96 million shares, worth $61 million. Almost 263 million NKLA shares traded last week versus an average of 46.2 million traded on a weekly basis from January 1^st and September 4^th.

“Trading was overwhelmingly due to long sided activity – existing longs selling to lock in whatever is left of their mark-to-market profits, new longs getting into the name at “cheap” levels and day traders moving in and out of the name in response to price volatility,” said Dusaniwsky. “NKLA short selling can not be a driver of price movement in the near future due to a severe lack of stock loan availability.”

Nikola shares took another hit earlier this week following a Bloomberg report, which said that the US Securities and Exchange Commission (SEC) is examining the merits of short-seller Hindenburg’s allegations.

Since Nikola went public on June 4 via a merger with VectoIQ, the stock soared from below $15 to around $50 last week, following the announcement that General Motors will take a 11% stake the company as part of a partnership to build electric pickup trucks. Shares in the company, which plans to manufacture hydrogen-electric trucks but has not yet produced or sold any vehicles, have plunged more than 48% over the past 3 months. (See NKLA stock analysis on TipRanks)

Wedbush analyst Daniel Ives this week maintained a Hold rating on NKLA with a $45 price target (35% upside potential) saying that the company “remains a “prove me” stock in the eyes of investors with the bears jumping on this story.

“We continue to believe seeing the forest through the trees that Nikola is a story stock now and its all about execution looking ahead through 2023,” Ives wrote in a note to investors. “If Trevor and the team can successfully build out its Arizona factory, morph prototypes into models (both on Badger and trucking front), lay the groundwork for its charging network, and catalyze delivery trucking orders with an attractive gross margin structure then the opportunity for NKLA is massive and the stock will reflect this dynamic.”

“However, clearly there is much wood to chop to get there over the next 12 to 18 months,” the analyst added.

For now, NKLA has 5 analysts covering the stock, who are divided between 2 Buy ratings and 3 Hold ratings adding up to a Moderate Buy consensus. With shares up a whopping 222% this year, the $55.75 average price target puts the upside potential in the shares at another promising 68% over the coming year.