Short Squeeze, Gap Fill May Be Driving Petmed Shares

Petmed Express Inc PETS is coming back down to earth Tuesday after a huge 18-percent gain to start the week. Investors were clearly impressed by the stock’s big earnings beat Monday, but the magnitude of Monday’s move suggests short covering may have played a role in the big move.

Petmed reported earnings and revenue that handily topped Wall Street estimates. However, revenue only beat consensus analyst expectations by about 6.1 percent.

The stock’s Monday gains roughly tripled the magnitude of the earnings beat, and a look at Petmed’s short interest may help explain the move.

According to shortsqueeze.com, Petmed currently has a very high short percent of float of 345 percent. There are currently more than 6.1 million shares held short with 6.6 days to cover.

Monday’s earnings move may have prompted many of those shorts to throw in the towel on their bearish bets. At the same time, Tuesday’s sell-off could be a sign that a new wave of short sellers is now entering the stock, although Petmed’s business appears to be strengthening.

The company reported 10-percent year-over-year revenue growth in the third quarter, its third consecutive quarter of double-digit revenue growth after three straight quarters of single-digit growth. EPS growth has also accelerated in each of the past four quarters from 0 percent to 37 percent to 41 percent to an impressive 79 percent increase in Q3.

From a technical standpoint, traders need to be watching to see if Petmed completely fills its earnings gap in the next several days. If it does, it could be an excellent buying point given the strong fundamental performance from the company in Q3.

At time of publication, shares of Petmed were down 8.74 percent at $39.62 percent.

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