NEW YORK — Americans are cutting back on luxuries, but you wouldn’t know it from the shares of boat retailer MarineMax. This seller of everything from tiny Boston Whalers to 100-foot Hatteras yachts hasn’t made a dime in two years, and analysts don’t expect it to do so for at least another.
Yet shares of the company have nearly quintupled in the past year.
If that seems odd, wait until you hear one reason why: Too many people are trying to push them down.
Investors who are bearish on MarineMax, called short sellers, have borrowed its shares from brokers and sold them, pocketing the proceeds. They eventually have to buy the shares back and return them to the brokers. Their hope is that the price will have fallen by then so they can make a profit.
The problem is, MarineMax stock has gone up, not down, in the past seven months. That means short sellers are facing losses, not profits, and are under pressure to quickly unwind the transactions to limit future losses. To do that, they have to buy shares, which can push the share price up even more.
It’s called a short squeeze, and though many Americans don’t know such a thing exists, much less understand it, it’s driving up many stocks.
“People call it the junk-stock rally,” says Paul Hickey, co-founder of researcher Bespoke Investments, referring to the market’s remarkable rise since the March lows of last year. “Companies most heavily shorted have done the best.”
Some losers proving winners in this Alice-in-Wonderland market: struggling Harley-Davidson; airliners facing record losses; Starwoods Hotels & Resorts, whose earnings per share sank 35 percent in the third quarter; homebuilders grappling with record low construction starts; the parent of supermarket A&P, which hasn’t turned an annual profit in two years; and clothes chain Talbots, which hasn’t in three.
