The shares of Brazil’s Casas Bahia group (BHIA3) have increased by 77% in March, with a significant 29.91% spike coming in just one trading session on Monday, March 10.
This substantial price movement comes ahead of the much-anticipated announcement of the company’s fourth quarter 2024 (4Q24) earnings on Wednesday, March 12.
According to local media InfoMoney, the stock’s ascent has piqued the interest of investors and analysts alike, generating questions about the fundamental factors fueling this movement.
The company on the massive surge
Casas Bahia sent a statement to the Brazilian Securities and Exchange Commission (CVM) after the Brazilian market closed on March 10.
In the statement, the company said that it was not aware of any undisclosed material facts or events that would justify the unusual trading.
The statement also added that the company reiterates its commitment to keep its shareholders and the market in general informed about any relevant act or fact under the applicable regulations and remains available for any necessary additional clarifications.
Such transparency is intended to ease investor fears, as the share price spike could often suggest deep-seated solvency problems or speculative trade habits.
Dissection of volume and demand
Nord Research told InfoMoney that the massive rally was supported by extraordinarily high trading volume.
On March 10, around 3:30 PM Brasília time, the volume of trading for the Casas Bahia reached 21.8 million shares, exceeding the average daily traffic of 5 million shares for the last year.
This uptick in activity begs the question of whether the trade was driven by a short squeeze.
That forces investors who shorted the stock to buy shares to cover their position, causing additional upward price pressure.
Nord analyst Rafael Ragazi said the company’s substantial short interest, with around 25% in leased circulation, undoubtedly contributed to the fervour.
After falling more than 99% between July 2022 and the end of last month, the company is currently valued at just R$470 million on the stock exchange, Ragazi said.
This remarkable fall in the preceding months makes the latest increase all the more surprising, indicating a turnaround in investor attitude.
XP Research confirmed to InfoMoney that 24.7% of the company’s shares are currently in a short position, a 4.4 percentage point increase in just 14 days.
The rise in short selling means there are a lot of investors who have bet on the stock falling.
What can be expected in the short term?
Market mood remains favourable as the company prepares to report quarterly results on March 12.
Investors will likely focus on the Q4 2024 report for insights into the stock’s recent downturn and potential turnaround plans.
Whether that momentum can be sustained in the wake of the results is uncertain.
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