(Bloomberg) — American Airlines Group Inc., the most shorted major U.S. carrier, surged after a mention on Reddit’s Wall Street Bets forum.
“AAL the next GME?” said Reddit user u/cardiffgiantthe1st in an online discussion Wednesday, referring to the stock tickers of American and GameStop Corp., the video-game retailer that has quintupled in value this week alone.
American’s stock gain adds to a flurry of share increases this week as Reddit-fueled retail traders take on short sellers and drive up prices. With stock after stock, legions of day traders have identified companies with high levels of short interest and piled in. In the case of GameStop, the soaring price has forced many short sellers to give up their positions.
American rose 6.6% to $16.56 at the close in New York, the most since Dec. 3, after paring gains from an intraday surge of as much as 15%. Other companies on a Standard & Poor’s index of big U.S. airlines fell.
The Fort Worth, Texas-based carrier declined to comment.
The gain isn’t “justified by anything fundamental,” Darryl Genovesi, an analyst at Vertical Research Partners, said in an email. He expressed the same view about the stock surge during the session of another company he covers, Virgin Galactic Holdings Inc.
Short-Squeeze Risk
Short interest as a percentage of American’s free float is about 29%, according to data from S3 Partners. No other major U.S. airline has short interest of more than 5%.
American is scheduled to report fourth-quarter earnings on Thursday. Like its rivals, the airline has been contending with the unprecedented collapse of air travel because of the coronavirus pandemic.
Following American’s advance, CFRA Research changed its recommendation on the shares to hold from strong sell and lifted its price target to $19 from $8.
“We think the stock is a high risk for one of the recent retail-investor-driven short squeezes we’ve seen play out,” CFRA analyst Colin Scarola wrote in a client note.
The firm also elevated Spirit Airlines Inc. from sell to hold for the same reason. Short interest is about 16% of Spirit’s free float, according to Vertical Research.
(Updates from 8th paragraph with CFRA comments on American, Spirit.)
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