Forget about CVNA, PLCE is the Next Major Short Squeeze Play

 Back in June, we called out Kerrisdale Capital and its short on Carvana Co. (CVNA) in our piece "Carvana: The Gamma Squeeze is Real, Time to Bankrupt Kerrisdale". Kerrisdale has a history of calling one bad short after another, creating a squeeze on all of its positions as the firm and its associates face liquidity crises. Kerrisdale is once again on a cold streak as its short on Altimmune, Inc. (ALT) simultaneously blew up just as CVNA headed from $70 to $80 this week. 

However, we think CVNA is done for now. Recall that in June after the initial spike to nearly $30, the stock pulled back to $20 before hitting $40 in the next month. People who are riding weekly call options aren't likely to cash in. CVNA looks headed to the mid to low $60's to close the gap that currently exists in the $62 to $66 area before resuming any further rise. Kerrisdale created an artificial short squeeze with its report, but now that both ALT and CVNA have come down from their weekly highs, the firm and its associates are on stronger footing. Unlike previous reports, Kerrisdale makes a compelling argument that CVNA should be valued more like CarMax, Inc. (KMX), which means its valuation is stretched.  The stock to focus on right now is The Children's Place, Inc. (PLCE). It has a far better opportunity to do a massive gamma squeeze right now as its short interest is well over 100%, similar to GME 2021 levels. 

A couple of weeks ago we talked about the chance that PLCE will be major squeeze play. Saudi Arabian firm Mithaq Capital bought up PLCE shares at a ridiculous pace, having bought up 6,751,387 shares from February 9th to February 13th as disclosed in several Form 3 and Form 4 SEC filings starting on the 13th. Mithaq currently owns 7 million shares, meaning the 11 million float is in reality more like 4 million. 

Not only is Mithaq buying up all the shares, it's helping the business out. This morning PLCE announced a $78.6 million interest free loan from Mithaq, which will clearly improve the liquidity situation and reduce interest expense. This makes sense for Mithaq to do things like this, as any lost interest income on lending that amount elsewhere will be more than made up in capital gains in the stock. It's not just retail traders banking on a squeeze. Mithaq is too and unlike thousands of retail pumpers with their own separate agendas and liquidity needs while pretending to act united, Mithaq is a united and determined entity with the wherewithal to make PLCE a success. The handful of retail traders will simply be along for the ride. 

The stock spiked to $25 this morning, but shorts quickly pressed it down to $20 on low volume in a desperate attempt to avoid the squeeze. They are on borrowed time. As previously mentioned, PLCE has 12.5 million shares outstanding and an 11 million float. That means there are only around 4 million shares in the float left when accounting for the Mithaq shares. 

The last reported short number was 6.4 million, meaning short percent of the float is 159%. This is far superior to CVNA and it's GME-like, summarized in the chart below. 

Imagine if Mithaq keeps buying to the point that it owns over 100% of the float? With all of those shares fully and legally filed. This is the closest we have ever been to shorts and synthetic shorts actually being exposed. Yet the meme stock crowd is fairly silent on it. Imagine what will happen when that silence is broken. 

The reason behind Mithaq's sudden interest in PLCE is confusing. Perhaps it saw an opportunity to create an epic short squeeze and profit from it? Saudis have been known to throw their money around for clout and maybe this is one of those times. 

Another consideration is that there is fair amount of open interest on in-the-money call options. Weekly calls are a new thing for PLCE and the expiries for March 1 and 8 don't have a lot of open interest. But the calls expiring March 15 do. A combined 4,661 call options at strikes $20 or below. This represents 466,100 shares worth of call options. If just a percentage of those calls are exercised, that could wreak havoc for the shorts with short interest already over 100% of the float. PLCE has massive short squeeze potential and is backed by a firm willing to support it. All it needs is the attention of the meme stock traders and it will take off. If CVNA holders put their money into PLCE instead, it could easily surpass $100 in a squeeze.