Is Whole Foods Market, Inc. (WFM) On the Verge of a Short Squeeze?

Whole Foods Market, Inc.'s (NASDAQ:WFM) short interest is back near multi-year-high levels

by Josh Selway

Published on Feb 11, 2016 at 12:01 PM
Updated on Feb 11, 2016 at 12:02 PM

Organic grocery chain Whole Foods Market, Inc. (NASDAQ:WFM) popped in after-hours trading last night, after the company posted better-than-expected fiscal first-quarter profit. However, broad-market headwinds have the shares down 0.5% today at $28.73 -- but still in the $28-$30 range they've been consolidating in for almost a month now, which is just above their 2011 lows. This erratic price action is sure to have speculators both in and out of the options pits keeping a close eye on WFM.

160211WFM22

Outside of the options arena, short interest on the stock has been edging higher since last May. More recently, short interest increased by over 9% in the past two reporting periods. As it stands now, over 11% of WFM's float is controlled by short sellers, putting its short-interest ratio at 6.50. This means it would take almost seven days for shorts to buy back their bearish bets, going by average daily volumes. 

What's interesting about the grocer's current short interest level is that it's back near multi-year-high territory. The last time this many WFM shares were sold short, it marked a roughly five-year peak in short interest, which resulted in a sharp upswing in share price as those bearish bets were unwound.

1602211WFM

Of course, that's not to say this time around is exactly the same, but considering the stock's recent consolidation and promising earnings reporting, it's certainly worth monitoring. What's more, the grocery stock could also get a short-term boost if analysts continue to weigh in bullishly.

Since yesterday's close, WFM has received price-target hikes from J.P. Morgan Securities (to $31) and Deutsche Bank (to $28). Still, the stock's average 12-month price target among analysts is just overhead at $29.50. Plus, a whopping 86% of covering brokerage firms deem the shares just a "hold" or "strong sell." Taken all together, there's potential for bullish attention from the Street to drive the shares higher

It would certainly appear option traders have high expectations for the stock, given the elevated levels of call buying seen recently (though, it's entirely possible some of this may have been the aforementioned shorts seeking insurance). Regardless, if you're looking to speculate on Whole Foods Market, Inc. (NASDAQ:WFM), you'll need deep pockets. Its Schaeffer's Volatility Index (SVI) of 84% marks an annual high, meaning the options market is pricing in extremely elevated volatility expectations at the moment. 


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