Interesting article published late Thursday, likely too late to catch the attention of many traders who start their Labor Day weekend holiday on Friday. The article pointed out that last week's NYSE short interest report showed Blyth (NYSE: BTH) has the largest short to float ratio of any listed stock, with fully 73.2% of its publicly tradeable shares sold short, then went on to show how the stock had actually fallen close to 20% in the time period between when the short interest measure was taken (8/15/13) and when it was reported (on WSJ.com 8/27/2013), suggesting the short interest is now significantly higher than the 73.2% of the float already known to be sold short.
The gist of the article is that there are just over 1 million shares in the public float that are not ALREADY sold short and there are several scenarios that could unfold that would cause a massive short squeeze -
1) BTH already has a stock buyback authorization that would allow them to buy back another million shares and earlier this year BTH bought back 500k+ shares in just a few weeks at prices nearly double where the stock is currently trading, suggesting that management might pull the trigger any day. An order to buy 1 million shares with the current short to float ratio could cause the stock to skyrocket and this would cause short sellers to start trying to buy to cover their short positions, which would be like throwing gasoline on a fire. The company has enough cash to not only execute the million share buyback, it has enough cash to buy back almost the entire public float, so traders should consider the possibility of the buyback driven squeeze or even a management led leveraged buy out of the remaining shares.
2) The most interesting thing proffered in the article is the potential for a short squeeze caused by Visalus reps/promoters buying BTH stock. No one stands to benefit more from increased exposure of the Visalus brand name than existing Visalus promoters, who profit when they are able to sell more "Body by Vi" nutrition shakes, cereals, supplements, etc. and sign up more promoters to carry Visalus products. What has transpired with the Hebalife short squeeze is that the Herbalife brand has been exposed to many millions of new people and not just a random sampling of people, but mostly those who are attuned to business and investing. It would cost Herbalife tens of millions to get the kind of targeted exposure they have received on CNBC, the Wall Street Journal, Marketwatch, Seeking Alpha, TheStreet.com, etc. and they have gotten it for free - just because their stock was targeted by short sellers and they chose to fight back. The author pointed out that many Herbalife sales reps seemed to "get" the impact this could have and many bought shares to help add pressure to the short squeeze, which allowed them to get more positive exposure for their brand and double their money in just a few months. I have personally seen this impact, as the big direct marketing thing in my community has been "Advocare" and I know of more than one Advocare who decided to take a look at Herbalife and consider moving their entire downline over to Herbalife.
The impact on Blyth/Visalus would likely be even larger than Herbalife experienced because it is a smaller company to begin with so there are more people who have not heard of it, there are fewer shares available to be bought and the stock is already trading at a very low level - thus the reps buying BTH (Visalus) shares could stand to make 200 - 300% if each rep bought just 100 shares. This is where it gets really interesting, because a Visalus rep can buy 100 shares of BTH of a little over $900 right now and if the stock trades back to where it was this time last year (and it could and then some if all Visalus reps bought 100 shares), that $900 would be worth over $4,000. But not only would they make huge gains on the stock they bought, the press coverage they would receive for so doing would expose the Visalus brand to tens of thousands of people who have never heard of it, possibly helping promoters all over the country get what amounts to free advertising to a very attractive targeted audience.
Though Blyth is a much smaller company than Herbalife, it's Visalus division is known in the direct marketing industry to be be an innovater in the social media realm, using Twitter, Facebook, Google+, etc. to educate, motivate and generally foster interaction, discussion and community among Visalus promoters. It was recently reported that over 57,000 of its promoters interact with the company through Twitter alone and it would not be that surprising to see members of the Visalus community push this out to the Visalus Twitterverse, where it could take on a life of its own as even those who are not connected would get the word out to their downline about the chance to not just help push the brand but also to profit handsomely. If even one half of those Twitter connected Visalus promoters decided to invest in 100 shares, the resulting short squeeze would likely cause the stock to more than double and the media coverage would be enormous and worth tens of millions (collectively) of dollars to Visalus promoters through the incremental business and stock market gains. The impact of half the Visalus Twittersphere buying 100 shares of BTH stock would likely cause one of the greatest short squeezes in NYSE history with the potential gains 2 - 3x what Herbalife reps have experienced over the last six months.