Key points:
- Regis Corp really doesn't seem to have a lot going for it
- Regis stock is also up 91% premarket
- Is this going to be another meme stock?
Regis Corporation (NYSE: RGS) stock is up 91% this morning premarket. Which is a real surprise as the general market view is that the company is more than a bit of a dog with no real or useful future ahead of it. Sure, it owns Supercuts and Rooster and other haircare chains, has a few hundred directly owned stores, thousands of franchises, but market capitalisation is just shy of $30 million. The burn rate might well see them out of money within 6 months, and given that market cap, there's little opportunity to gain by issuing more stock. Not with the numbers they'd require to meet their ongoing losses.
True, there has been a hope that the end of lockdown is going to lead to a surge in demand for haircuts. But it's also possible to think that that's a bit hopeful – you only need one to be brought back up to date after all, the lost sales are indeed entirely lost. It's also true that as a branded salon Regis isn't aiming at the very bottom of the market. So, that more of the middle class are going to continue working from home could lead to a secular, not just cyclical, cut in demand.
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An objective view would be that Regis has lost its way, there's no grand market change about to leap out and save it and few of us do think there's going to be some massive resurgence in the market being addressed. This is why the Regis stock price is down 95% since August last year.
Well, OK, but now we've got to ponder on why there's that 90% and change jump in the Regis price this morning. There's no particular news which leads to this, it's just one of those things that has happened. A possibility is that Regis has become the next meme stock.
Think back to the original here, GameStop. Bombed out retail chain with really no hope. Market cap was too low to be able to raise capital for a transformation, physical stores for game buying were pretty old-fashioned. Sure, there's a brand there that could be moved online but that takes capital. But there was that near (and at times, over) 100% short interest in the stock. Which meant that if a short squeeze could be put on then it was going to go stonks. Which is exactly what happened of course. The end result being that GameStop's stock price soared, they were able to refinance at low dilution and now the company seems to have a future.
Since then, there have been a number of attempts to try and repeat the trick. A reasonable guess is that someone is trying it here at Regis. And yet there's a problem with the likely success. The short interest is only 16% of the company. Sure, that could cause some covering when the price is up 90% but that's not enough to drive it truly stonks.
An attempt to drive Regis Corp stock up through a short squeeze might well not work – but then that's the risk in playing with potential meme stocks.
