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Vladimir Zernov
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Geo Group

GEO Group Video 09.06.21.

Short Squeeze Mania Continues

Shares of GEO Group, a real estate investment trust specialized in secure facilities, gained strong upside momentum as traders continued to search for stocks with high short interest.

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Recent moves in “meme stocks” like GameStop or AMC Entertainment Holdings have pushed speculative traders to search for stocks with significant short interest.

Some of these stocks may not have a wide following on WallStreetBets or similar forums, but it looks that short-sellers are in danger in every crowded trade in today’s market.

There was no clear catalyst for the move. The company has recently appointed a new CEO while the previous CEO moved to the position of Executive Chariman of GEO’s Board of Directors, but these changes are hardly sufficient enough to make the stock double in less than two weeks.

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What’s Next For GEO Group Stock?

GEO Group shares have been under pressure for many months as investors sold REITs that deal with correction facilities due to increasing political pressure on such business. As a result, the stock became cheap. Analysts expect that GEO Group will report earnings of $1.23 per share in 2021 and $1.08 per share in 2022.

At a price of $9.50, GEO shares are trading at less than 9 forward P/E for 2022. The company’s cheap valuation highlights a key difference between GEO Group and other short squeeze stocks like GameStop and AMC as GEO is profitable right now.

At the same time, it should be noted that the market expects that GEO Group’s financial performance will decline over time which explains the recent pressure on the company’s shares. I’d also note that GEO’s FFO estimates (which are important for REITs) are mostly stable, but it looks that investors are worried about the company’s future in the long-term.

In the near term, the dynamics of GEO shares will depend on how short sellers managed to deal with the rapid increase of GEO share price, and whether the current upside move will attract more retail traders. I’d note that it is not clear whether GEO Group can get the same cult following like GameStop or AMC as investing in a “prison stock” may not be attractive for some traders regardless of potential profits.

For a look at all of today’s economic events, check out our economic calendar.

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