Should You Buy VIH Stock Now Amid Its Short Squeeze?

Mohit Oberoi, CFA - Author

Sep. 3 2021, Published 7:28 a.m. ET

VPC Impact Acquisition Holdings (VIH), the SPAC that’s taking cryptocurrency exchange Bakkt public, was trading higher on Sep. 3. Why is VIH stock going up, and should you buy the stock on speculations of a short squeeze?

Article continues below advertisement

Reddit group WallStreetBets infamously triggered short squeezes in the first quarter of 2021. Of late, there have been several short squeezes in SPACs.

SPAC short squeezes this year

There was an epic short squeeze in Locust Walk Acquisition (LWAC) when the majority of stockholders opted for a redemption and brought down the outstanding share count. Blue Water Acquisition stock also rallied as investors bet on a short squeeze in the stock.

Article continues below advertisement

Why is VIH stock rising?

There hasn’t been any recent news from either VIH or Bakkt. VIH stock is rising on speculations of a short squeeze. While VIH isn't popular on WallStreetBets, several Stocktwits users are discussing the stock.

Article continues below advertisement

VIH stock discussion on Stocktwits

A Stocktwits user by the name of Hectik has pointed out that there are no shares available to short, based on Fintel data showing zero availability on Sep. 2. That said, a Fintel disclaimer indicates that the data is from a leading prime brokerage only and does not include all brokers.

Article continues below advertisement

Another user, Utopian, asked Stocktwits users to only buy and hold VIH stock, and not sell them. Utopian pointed out that, given the low float and high short interest, short-sellers in VIH would then have to buy the stock at a higher price.

VIH stock's short interest

According to Fintel, VIH's FINRA short volume was 741,852 shares on Sep. 2, less than 25 percent of its total volume. However, another thing to consider is that VIH's average volume is just about half a million.

Article continues below advertisement

If VIH investors hold onto their stocks, they could trigger a short squeeze—though some shorts could be caught on the wrong foot. While short-selling is legit, it's become a risky business as retail investors squeeze against hedge funds.

Article continues below advertisement

Bakkt stock's forecast

While considering short-squeeze stocks, it's always advisable to look at their business fundamentals and valuation. This can offer insights into safety margins in case the short squeeze doesn't play out.

Bakkt, a fast-growing fintech company, expects revenue (after transaction expenses) of $55 million in 2021, and then forecasts it growing 75 percent compounded annually to $515 million. It expects to turn adjusted EBITDA–positive in 2023, and foresees its adjusted EBITDA rising to $285 million in 2025.

Article continues below advertisement

The SPAC merger with VIH valued Bakkt at an EV (enterprise value) of $2.09 billion and an equity value of $2.66 billion, giving it a 2025 EV-to-EBITDA multiple of 7.4x. That multiple looks attractive compared with those of other fintech names.

Overall, VIH stock looks like a good buy ahead of the merger. The company has strong management and is backed by NYSE owner ICE (Intercontinental Exchange). ICE also participated in the PIPE deal, contributing $50 million to the $325 million total.


Latest Financial Analysis News and Updates

    © Copyright 2022 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.