Short Squeeze May Be Fueling CARBO's 30% Earnings Jump

A big Q4 earnings beat has shares of CARBO Ceramics Inc. CRR exploding higher by 30.6 percent on Thursday.

Despite reporting a quarterly loss of $15.2 million, CARBO’s Q4 numbers beat extremely low Wall Street expectations. However, a large part of the huge market reaction may be attributable to a short squeeze.

On the surface, CARBO’s year-over-year 49 percent Q4 revenue decline looks fairly ugly. However, since the company is so closely tied to the struggling U.S. oil & gas industry, the Q4 revenue decline was a major improvement over the -72 percent and -73 percent declines in the two previous quarters. Earnings growth actually flipped positive for the first time in recent history in Q4. Despite the loss, earnings were up 10 percent compared to a year ago.

After putting the Q4 numbers in context, it seems as if the company may have turned the corner and could now be beginning the upswing of the current oil & gas cycle.

A number of short sellers appear to have been betting that the company wouldn’t survive the downturn. According to shortsqueeze.com, CARBO currently has an extremely high short percent of float of 31.2 percent. There are now more than 6.4 million shares held short with 15.3 days to cover.

The Q4 earnings report may have been the last straw for shorts hoping that the stock’s decline would continue in 2017. If the 30 percent Thursday gain seems a bit much, a possible short squeeze could be the reason for the surprising magnitude of the post-earnings move.