One of the big movers on the radar of investors today is micro-mobility company Helbiz (NASDAQ:HLBZ). That’s because HLBZ stock is skyrocketing higher, up about 60% as of this writing. This move follows an announcement from the company that the board will investigate “alleged illegal short selling” of HLBZ stock.
Helbiz is putting together a “comprehensive action plan” to address this issue. The company cites layoffs and negative impacts to employees as one of the reasons for the investigation.
Today’s increase in HLBZ is notable because Helbiz isn’t the first company to use this playbook. Singapore-based Genius Group (NYSEMKT:GNS) has seen gains of more than 400% over the past five days after announcing a similar investigation. Today, GNS stock is up another 40% as of this writing.
Let’s dive into what to make of today’s impressive move in HLBZ stock.
Can HLBZ Stock Continue to Rally?
It’s worth noting that short selling is generally a legal activity. Investors who believe a company is overvalued can borrow shares of said company on the open market, sell them and then buy them back at a lower price in the future (pocketing the difference). In fact, this is one market mechanism that many believe is important for price discovery. If investors are unable to place bearish bets against stocks, then market prices may be inaccurate over the short term, providing disparities that shouldn’t exist in efficient markets.
That’s the theory, at least. In practice, a number of nefarious actions can be taken to make short positions more profitable. Institutional investors can engage in so-called “short and distort” campaigns, outlining their bear thesis with facts (which can be debated). While most short sellers are aware that legal action can result from such campaigns (if their facts aren’t correct), this is common practice for many companies, when announcing a position.
Other, more complicated actions can be taken as well. These include naked shorting, or short selling shares of a stock that aren’t deemed to exist. This is the specific allegation that Genius has made and it appears that Helbiz is going down the same path.
In the past, certain cases have been proven to be accurate, but naked short selling is hard to prove. Thus, it’s unclear what the outcome will be for investors. That said, as far as speculative catalysts are concerned, this is certainly something worth watching. It should be an interesting few weeks for both companies as we learn more about these investigations.
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On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.