Let's Perform a Portfolio 'Stocktopsy' on Our Axon Exit
Short squeezes can be violent in that they can drive a stock’s price significantly higher.
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Last week was a busy one for the Pro Portfolio. While we outpaced the overall market, we also made a number of moves, including taking advantage of two holdings that saw significant moves due to short squeezes.
We’re referencing the portfolio ringing the register with Dutch Bros BROS and closing out our position in Axon Enterprise AXON. As impressive as our gains were on both trades, we left some gains on the table, especially those tied to the AXON exit.
In our trade Alerts for both BROS and AXON, we discussed the pre-earnings level of short interest, the number of days to cover that short interest, and why the “short squeeze” was fueling the pop in those share prices. Short squeezes can be violent in that they can drive a stock’s price significantly higher should a frenzy to cover the short shares emerge. We saw that with BROS shares, which reached a high of $50.24 on November 7, up 43% from their closing price the night before of $34.94. Ultimately the shares closed trading on November 7 at $44.77.
While the percentage move in Axon shares did not top out anywhere near the one we saw with BROS shares, they peaked at $611.88 on November 8, 30% higher than their $468.75 closing price the night before.
Checking the portfolio’s Holdings table, you can see on the Closed Trade Gain/Loss tab that our register ringing trades for BROS and AXON were executed at $48.04 and $529.49, respectively.
The major difference between the one-day gain of 37.5% with BROS shares and the 13% gain on AXON shares was time. Had we waited and executed the AXON trade at the same time as we made the BROS trade at around 11 a.m. ET instead of 9:45 a.m. ET, our trade would have been executed near $547 for a gain of 16.7%. If we waited longer or staged our exit throughout Friday afternoon the overall return on the last slug of AXON shares would have been larger than the gain we booked.
Let’s remember, though, while we may not have top ticked our exit, AXON shares had already put in a substantial run from $280 in early August and we benefited enormously from holding the stock instead of panicking during the late July selloff.
Still, in the interest of becoming better investors the lesson learned is to more carefully time and potentially stage a position sale when a short squeeze is underway.
As we look at the revised Wall Street consensus price target for AXON that has been reset at $550 from $385, based on what we know today, we would need to see AXON shares fall to about the $470 level to call them up from the Bullpen. If they fell to $440 that would be an even better level. As we mention those levels, you’ll notice the corresponding gaps in the chart below.
At the time of publication, TheStreet Pro Portfolio was long BROS.
