The Shorts Are Covering Quick: iRobot Corp.
Today, we will take a look at the short interest of a company we discussed earlier: iRobot Corporation. The short interest in the number of shares that are currently open in a short position. With iRobot's recent earnings report, the investor sentiment was rather bearish than bullish as the stock went down 14% within hours. However, before the closing of that trading day the stock closed at just under -1%.
Let's look at what happened. Their earnings were in the morning of April 29th. According to fintel (Data shown below) we see that a big spike in iRobot's short ratio decreased on April 27th to the next day (from 38.9% to 22.1%) and April 29th to the next day (from 26.2% to 14.7%). Clearly, some insiders decided to cover their short positions early, and others short traders closed their position after earnings. Since then, the short ratio has been stable, yet the stock has continued to go up. Thus, we could hypothesize that the buyback on April 29th was caused by short sellers covering but this recent price momentum cannot be explain by shorts covering.
The reason why the stock has been going up lately, is because during the investor call, and other recent public news that has come to light, they mentioned that they are working very hard to on the request for tariff exclusions, which brought the stock down from $130 to $40. Right now, it seems that half of the short sellers are thinking that this request will be successful and the stock will climb back to its original valuation. Despite, rather, bad news that the introduction of the Terra (Its newest product, a lawnmower robot) will likely be delayed for release, the short sellers had no real impact on the share price. Additionally, Colin Angle, the CEO of iRobot Corporation, has said that the supply chain is currently weak due to the COVID-19 circumstances that they need to find new intelligent ways to still meet production.
In my opinion, I believe that this is great news overall for long-term investors for some short-term price action. We have seen this company have a short ratio higher than 50%, and in a matter of 2-3 months within times of a pandemic it is currently only 13%. A company that also faces high levels of competition from a second tier market, and with AmazonBasics developing home vacuum robots as well as a first tier competitor. Something I have not seen yet been discussed are some possibilities to take Amazon to court for copying iRobot robot designs given iRobot's patents and IPs. However, it would be quite difficult to win against Amazon given the money advantage.