MOGO $4.50 – 240% Gain But Huge Short Position May Be More Fuel

MOGO:TSX $4.50 – We are sitting on a 240% Gain since Oct/16 but for anyone still holding (or interested in the company), I have some insight concerning valuation – and a huge short position that has the “potential” to still fuel a strong move higher (at some point down the road).

Heading into July, there was a surprisingly large short position on MOGO – 2.05 million shares (there is only 18.3 million shares outstanding). By July 15th that short position was reduced to 1.86 million shares but it still accounted for 10% of their outstanding shares.

The short position on MOGO began to grow dramatically from mid March (280k short) to the end of April (1.5M short) as the price rose from $3.20 to $4.00

There was word on the street that Mogo was going to finance and from there, a few groups started shorting. Mogo had a number of bought-deal “offerings” (at a discount) from various institutions – which is what the shorts often do when they want to cover.

As the share price went up, more shorts came in and the bought deal offering price kept rising. This was the main reason Mogo decided to do a debenture with a convertible – rather than a financing, which would hopefully squeeze the shorts.

That process began in May and closed early June with a $15 million debenture. But instead of the shorts covering, the short position continued to rise through June.

It is not often you will ever see a well established company with such a high percentage of shorts.

The company estimates there is about 6 million shares (33%) not controlled by insiders. Of that 6 million, there is at least 1 million in Germany, another 1 million with a close Canadian group, and another 1 million estimated with friends of insiders. Roughly there is 2 to 3 million shares of the 6 million that are not in “friendly” hands.

So currently there is a short position of 1.86 million shares but only 2 to 3 million shares available that the shorts could try and buy to cover. One option the company has is to request hard delivery of their certificates (which would create a significant short squeeze and, at least in theory, drive the price higher).

Shorting is often the “sketchy” aspect of the stock market and it is not uncommon for those with large short positions to orchestrate public bashing of the company. The most popular (for MicroCap stocks) are the Bullboards on www.Stockhouse.com. Those posting are referred to as “Bashers”.

In the case of MOGO, the number of bashers that appeared as the stock was being shorted, increased significantly. Often these bashers are paid to disseminate / post as much negative information as possible across multiple platforms.  It is literally a “war of words”.

 

Here’s one example from stockhouse.

http://www.stockhouse.com/companies/bullboard?symbol=t.mogo&postid=26279995

Although, it looks credible and well researched, the numbers are actually completely false.

Here’s a factual rebuttal from another poster.

http://www.stockhouse.com/companies/bullboard?symbol=t.mogo&postid=26283379

 

ANALYST TARGET

Mackie Research (July 4th): Target $7.

On a 2018 basis, Mogo trades at 2.2x net sales vs. FinTech names at ~3.9x . Relative to Fintech stocks, our revised $7/sh price target reflects a discount revenue multiple of 3x net 2018 revenue (2.7x previously). A multiple in-line with peers implies a stock price approaching 2015 IPO. A stock price of ~$8.50-9.50/sh implies ~4x 2018 net sales, i.e. in-line with peers. Mogo IPOed at $10/sh in 2015.