SolarCity: Rising Short Interest Makes Short Squeeze Possible

| About: SolarCity Corp. (SCTY)


SolarCity's short interest continues to soar.

More than 24% of the float is now short.

A short squeeze becoming more likely.

Recently, a panel supply deal was announced.

A couple of months ago, I detailed how short interest was soaring for SolarCity (NASDAQ:SCTY). At that time, short interest had risen from 2.54 million shares to 11.34 million shares in the past twelve months. While short sellers covered a bit into mid-April, short interest has now risen for three straight updates. SolarCity's short interest hit a new high at the end of May, as you can see in the chart below.

At the end of May, more than 12.3 million shares were short for this stock. That's about three days of average volume, which doesn't seem like too much. However, the float is just barely over 50 million shares, meaning more than 24.2% of the float is short. While SolarCity has more than 90 million shares outstanding, the float is a lot lower. That's why a short squeeze seems more and more likely as short interest rises. About 13% of the outstanding share count is short, which isn't exactly a small number either.

While SolarCity is expected to show spectacular revenue growth this year and next, loss expectations have spiked higher in recent months, as seen in the table below. This may be one reason why short sellers continue to bet against this company. At its latest report, the company beat on revenues but missed on EPS, and a larger than expected Q2 loss was forecast.

(Source: Yahoo! Finance estimates page)

Shares of this name have trended lower since my previous update on short interest, when they were in the low $60s. On Wednesday morning, shares traded as low as $48.13 before rebounding over $50 by the close. Wednesday's low was only a little more than $2 above the 2014 trading low for this stock. The 52-week high is $88 and change, so this stock has certainly come off its highs, along with many of the momentum names.

The company recently announced a panel supply deal, where Norway's REC will supply 100MW-240MW of solar panels to SolarCity. This will start in Q4, and the panels will be installed across SolarCity's 15-state coverage area. SolarCity expects to deploy 500MW-550MW of systems this year, and 900MW-1GW of systems in 2015.

Deals like this should help chase some of the shorts away. However, as I've detailed today, the number of shorts continue to increase. More than 24% of the float is now short, and that makes a short squeeze more likely. Should this company report some more good news, it is possible that shares could see a nice boost from short covering. I'll continue to watch this name's short interest, and will report back if the situation changes in a major way.

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