Man looking on a laptop
Source: istock

Reddit Footprints in Invesco Mortgage (IVR) Stock Rally—Is It a Buy?

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Jun. 10 2021, Published 2:04 p.m. ET

Invesco Mortgage Capital (IVR) stock’s sharp spike has left investors wondering what’s going on. Many people are looking for Reddit’s footprints in IVR stock’s rally. Should you buy IVR stock now or should you stay away?

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Invesco Mortgage describes itself as a real estate investment trust company. It mainly deals in mortgage-backed securities. It’s affiliated with Invesco, which is a global investment management firm. With substantial short interest, IVR stock looks set up for a short squeeze. Whether it will explode like AMC stock is another matter.

invesco mortgage capital
Source: Invesco Facebook
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What happened to Invesco Mortgage (IVR) stock?

Invesco Mortgage stock rose more than 10 percent in morning trading on June 10 to hit $4.60. That followed a more than 17 percent rise on June 9 that sent the price to its highest level in about a year. With gains of almost 40 percent in the past week, IVR is outshining many recent Reddit favorites like Clean Energy Fuels (CLNE), AMC, and GameStop (GME). 

Invesco Mortgage (IVR) stock forecast

IVR stock appears to have run faster than Wall Street expected. Its current $4.55 price has jumped well ahead of the average target price of $3. It has also overtaken Wall Street’s highest target price at $3.25.

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Is Invesco Mortgage (IVR) stock undervalued?

The current stock price gives Invesco Mortgage a valuation of about $1.3 billion. IVR stock has traded in the range of $2.53–$6.05 over the past year. Even with the latest spike, the stock continues to trade about 30 percent below its recent peak. That offers a discount entry opportunity that bargain hunters might want to exploit.

Invesco Mortgage stock and WallStreetBets

Invesco Mortgage has become one of the most-mentioned stocks on WallStreetBets. The Reddit community is known for initiating the GME short squeeze and credited for AMC stock’s recent spike. IVR stock mentions on WallStreetBets increased more than 2,000 percent on June 9 and remain high on June 10.

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Invesco Mortgage has a fairly large short interest at 24 percent. According to Fintel data, the bearish bets on the stock have increased recently. That level of shorted shares makes IVR stock a strong short squeeze candidate and that’s one of the discussions on Reddit.

Invesco Mortgage (IVR) is a good buy.

Before you buy IVR stock, you need to know what’s going on and how the stock ended up with a large short interest. Companies like Invesco Mortgage have benefited from the housing boom enabled by near-zero interest rates. 

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buying invesco mortgage stock
Source: istock

Investors focusing on fundamentals know that the housing boom can’t continue forever. At some point, the Fed will start to tighten its monetary policies with actions like hiking interest rates. When that happens, housing demand could drop, which would impact gains for real estate-related businesses like Invesco Mortgage. 

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On the basis of this analysis, some hedge funds decided to short IVR stock. The desire to short the stock increased so quickly that it became susceptible to a short squeeze and Redditors are exploiting that opportunity. 

Best price to buy Invesco Mortgage (IVR) stock

Investors hoping for an AMC-type pop in IVR stock might be disappointed. The stock could suffer short squeeze fatigue sooner than many expect. Hedge funds learned a lesson in the GameStop squeeze and the recent AMC spike has taught them more. They know that going to battle with Redditors can be costly. Therefore, they will try to unwind their short bets before IVR stock shoots up too high. 

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If you’re interested in playing the IVR stock short squeeze, you need to identify a good entry point. The upside might be limited as hedge funds rush to shrink their bets on this battleground stock. Since the stock has moved up quickly, you will need to act fast and that means picking it up in the $4.30 range.

For a long position in IVR stock, it would be best to wait for the ongoing squeeze to run its course. A price around $3 looks like a good entry point for a long position. That sets you up for decent upside potential.

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