Turtle Beach Corp (HEAR) reported 4th quarter and full year 2018 results yesterday, with CEO Juergen Stark disclosing 4th quarter results that hit â€śrecord sales & profitsâ€ť and market share increasing by 3.7%. Unfortunately, Turtle Beach also revealed they are amending their 2nd and 3rd quarter filings due to erroneous accounting procedures regarding their 2018 warrant issuance and modest 2019 earnings and EPS guidance.
HEAR is down over 16% in mid-day trading.
HEAR short interest is $147 million; 9.05 million shares shorted; 72.68% of float; stock borrow at 60.65% fee on existing shorts, 130% to 170% on new shorts. Turtle Beach is the fourth largest short in the U.S. Consumer Electronics Sector.
HEAR shares shorted has increased by 2.6 million shares, +41.43%, in 2019 as short were selling into the Turtle Beachâ€™s February rally. Shares shorted has been stable for three weeks as stock loan availability has been exhausted. While shares shorted have only increased by 39 thousand shares, +0.43%, in March, stock borrow rates have jumped from 41.40% fee to 60.65% fee, a 47% increase.
Before todayâ€™s price drop shorts were down for the year, but with todayâ€™s $24 million in mark-to-market profits shorts are now up $3.4 million in 2019.
With stock borrow rates topping 150% fee on new shorts, rates on existing short positions should begin inching upwards and hit the 100% fee level soon.
With HEAR stock borrow rates going parabolic and shorts finally in the black for 2019 we should start to see some short covering as ongoing financing costs eclipse potential Alpha returns. In addition to HEAR short sellers voluntarily closing out positions we may see an increase in stock loan recalls forcing shorts out of their positions if long shareholders in margin or lending programs begin to sell out their positions. If HEARâ€™s stock price begins to recover and heads back towards the top end of its recent $13-$18 trading range shorts may begin to get squeezed out of their positions.
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Managing Director Predictive Analytics, S3 Partners, LLC
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