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Is UWMC Stock The Next Short Squeeze?

Former SPAC United Wholesale Mortgage Holdings has been a hot topic on Reddit lately. Wall Street Memes discusses why the stock could be on the edge of a short squeeze.

United Wholesale Mortgage Holdings  (UWMC) - Get Free Report has been under short seller attack in the past few weeks. The stock has been dealing with increased bearishness since the company unveiled a secondary stock offering and, a few days later, announced buyback plans.

Figure 1: United Wholesale Mortgage offices.

Figure 1: United Wholesale Mortgage offices.

Speculation and elevated short interest could set UWMC stock for a short squeeze in the foreseeable future. Today, Wall Street Memes talks about the possibility.

UWM Holdings: background first

United Wholesale Mortgage Holdings provides residential mortgage lending in the US through a wholesale channel. The holding went public though the largest SPAC deal at the time, at a valuation of $16 billion.

UWM, whose business operates under the broker model, is currently valued at a $10.6 billion market cap. The stock was priced at a bit over $6 at last check, which is down 41% since the IPO price of January 2021.

Secondary offering, followed by buyback

On November 15, UWM Holdings announced a secondary offering with the goal of increasing its low public float of nearly 97 million shares by 50% to generate more liquidity. However, the market reacted poorly, and shares tanked.

The bearish move caused the offering to be halted. UWM’s principal shareholders, CEO Mat Ishbia and his father, argued that the stock had become too cheap for the transaction to go through as planned. A few days after the company announced the termination of the offering, the management team declared its intention to accelerate a previous buyback program.

Mat Ishbia, President and sole director of SFS, the controlling shareholder of UWMC, stated:

“We are very proud of our financial and operational results both in the third quarter and in prior quarters. I believe, both as the CEO of UWM and the controlling shareholder of UWMC, that the Company is poised for even better performance in the upcoming quarters. We will be aggressive with utilizing our remaining buyback authorization at these prices and if the market returns to a reasonable level, SFS will be willing to do its part by providing availability to increase the public float. But the terms have to make sense, and doing a deal today at these levels did not make sense to me.”

UWM shares dropped nearly 20% after the secondary offering announcement, but promptly recovered after the company changed course on its capital plans.

High short interest and stock loan fee

According to Ortex, 15% of UWMC’s float was shorted, as per the latest estimate — see below. Such high numbers raise the possibility of a short squeeze, especially as UWMC stock has a small float of around 97 million shares and daily traded volume of only about 3 million.

Figure 2: Short interest and cost to borrow stats on Ortex.

Figure 2: Short interest and cost to borrow stats on Ortex.

Also, the annual cost to borrow averages around 8%, while a maximum of 21% has been reached. With only 350,000 shares available to short, short sellers could struggle to maintain their positions, especially in the case of high stock price volatility.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)