**WeWork Stock Surges Amidst Solvency Concerns**
In a remarkable display of a meme-stock rally, WeWork Inc. experienced a record-breaking surge of 43%, following a prior surge of 153%, mere days after the co-working space provider raised concerns about its solvency. This surge drove the stock price as high as $0.33 before closing at $0.18. The surge was likely amplified by a significant increase in options activity, with volumes in bullish options exceeding bearish bets by more than 100 times. This surge in WeWork stock is reminiscent of similar rallies seen in struggling companies such as Tupperware Brands Corp., Revlon Inc., and Hertz Global Holdings Inc., all of which experienced significant gains despite doubts about their future viability.
**Rebound from Worst Day in Stock’s History**
The rapid rally comes on the heels of WeWork’s worst day in stock history, as it experienced a 39% decline and closed at a record low of $0.13 on Wednesday. Although the stock has rebounded, WeWork shares have still lost over 95% of their value since their initial trading debut in 2021, resulting in a loss of more than $11 billion in market value.
**Lack of Excessive Short Interest**
Despite the classic ingredients of a meme stock rally, one notable element missing from WeWork’s surge is excessive short interest. In the past, retail investors have targeted short sellers by investing heavily in stocks that are expected to decline, leading to forced buying by short sellers to cover their positions. However, short interest in WeWork has been decreasing in recent months, with only 14% of its free float held as short interest, the lowest level since February 2022.
**Risky Bet on WeWork’s Equity**
Betting on WeWork’s equity immediately after the company issued a warning about its potential solvency issues poses a considerable risk. Equity investors often suffer significant losses when a company goes bankrupt, and based on the company’s bonds, the likelihood of this scenario seems plausible. WeWork initiated a distressed exchange earlier this year, allowing bondholders to exchange old notes for new ones. The new notes, featuring a CCC+ rating, pay 15% and last traded at 52.5 cents on the dollar. This pricing suggests that bond traders have little chance of being fully paid, let alone any recovery for common shareholders.
Despite concerns about its solvency, WeWork experienced a significant surge in its stock price, following a pattern often associated with meme stocks. The stock’s rebound from its worst day on record may indicate a renewed optimism among investors, although WeWork shares have still lost a considerable amount of value since their initial trading debut. The absence of excessive short interest suggests that retail investors are not targeting the stock as a means of squeezing short sellers. However, betting on WeWork’s equity remains a risky proposition, given the company’s troubled financial situation and the significant challenges it faces in the real estate market.