bet against the company have been rewarded handsomely, as shares of WLT have fallen 83.6 percent in 2014 alone. But as the percentage of investors betting against the company continues to grow, and WLT continues to plummet, shares of the company are looking like they might finally squeeze their way up and break out.
Betting against Walter Energy has long made a lot of sense. You’re talking about a company in a troubled industry (coal mining) that’s losing money hand over fist ($94.9 million in Q1 2014, $151 million in Q2 2014). The price of coal itself has fallen by more than 66 percent, not to mention exports for it have dwindled drastically. Domestically the story hasn’t fared much better, with President Obama declaring a mandate to reduce US reliance on the fossil fuel in his administration's so-called “war on coal.”
Walter Energy's stock has in turn plummeted, from $16 a share in January to its September 22 price of $2.90. Coinciding with this drop the company’s short float, or number of investors hedging that the company’s stock will far even further, has ratcheted up to 57.67 percent. This number represents the third-highest short float of any company that trades on NASDAQ or the NYSE.
Considering Walter Energy has dropped so far so fast – 53.58 percent in the last 30 days alone –- it appears that the company might have hit its bottom. To be sure, we’re talking about a troubled company burning cash like there’s no tomorrow. But Walter still has some value, and only so many investors can short the company before they get squeezed out. And it appears that squeeze might be happening sooner rather than later.
On September 23 trading action Walter Energy shot up nearly 7 percent before settling back into a modest 4.78 percent gain by 3 PM EST. If Walter Energy continues to experience upward momentum, more investors will be forced to call in their short positions. And regardless of the external factors weighing heavily down on Walter Energy the company’s stock will be squeezed up even higher.
To be sure, that’s quite an “if.” Wall Street’s favored position of betting against coal companies like Walter Energy has so far rewarded the shorters handsomely. But as Warren Buffett said, “You can’t buy what’s popular and do well.” As of the fall of 2014 investing in Walter Energy’s downfall is clearly the popular choice.
But for how much longer can it be the profitable one?