Aqua Metals Pops on Short Squeeze…This Could Get Fun

Time is ticking for the shorts...

Shares in AQMS were up 30% last week, with the bulk of the gains coming on Friday, a day with no news in the stock. There certainly has been a lot of news lately, however. This last week saw an operational update, management changes and an extension of the JCI contract.

But, that all came prior to the big move in the stock. If the news itself didn’t lift the stock, what’s behind the move?

Check out the increase in short interest since the end of January. It’s gone up by around 50%. 5.4 million shares is a massive short interest, ignoring the fact that there are likely many shares naked short as well.

Meanwhile, what’s happened to AQMS stock since January 31st?

Eighty-five percent increase is a world of pain for short sellers. And, you’d have to think it’s going to get worse before it gets better. Think about what’s happening here and what are the most likely catalysts going forward.

  1. Clarke has left the Company. The shorts loved to point to him as the biggest issue with AQMS. Well, he’s gone. So, one of the next catalysts is a new CEO. This would only be good for the stock.
  2. JCI has extended their contract with Aqua Metals. While this is not a huge deal for longs at this time in my opinion, it does mean that there is a hope for significant progress in the future. Anything positive regarding JCI would be a potentially fatal blow for shorts. Would you like to bet against this wild card? Certainly not at this valuation, in my opinion.
  3. Operationally, they are making progress. It’s slow and painful, but progress demonstrates that the process works. Shorting at $20 might make sense if you think the company will have difficulty ramping up. But, shorting at $3? Any progress operationally is not really factored into the shares.
  4. A dissident shareholder vote is coming, with Steve Cotton’s name bandied around as the potential next CEO. Cotton is the guy with the industry experience who landed JCI and can reinvigorate that relationship, among others in the lead acid battery industry. If he joins, it will be a very positive event. At the same time, with a proxy battle looming, the Company is going to do everything possible to appear in a great light with investors. So, expect more good news, frequently. Again, not good for shorts.

The bottom line is that the next several weeks should have a number of events that all speak to wooing shareholders and scaring shorts. Meanwhile, the stock is still very cheap. If the technology works, shorting at this level makes zero sense to me.

The shorts have inexplicably pressed their bets. The Company has a strong balance sheet, is ramping operations, and has positive management changes taking place. Why not take your short profits here (they are still very profitable), rather than risk it all.

I believe that Friday’s action was just that…the beginning of the short covering rally. My guess is it has legs.

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  1. all good points. but this gets us back to square one. we still don’t know the actual cost of the AQMS refined lead. The process can work, but if the lead is more expensive, how valuable is the stock? How much did it cost JCI to extend the agreement? I am guessing no new money or commitments from JCI, only an extension of the deadline. So far as I can tell AQMS has at best a LONG way to go, with only 3 modules running only 8 hour shifts. Thats a long ways from 16 modules running 24/7, with no word on cost of the refined lead. Short covering will get you a ways, but I am still out of this stock. I am keeping an open mind but a safe distance for now. AQMS, show me I am wrong!