Spirit Airlines Faces Challenges but May See a Stock Surge

Investors React: Spirit Airlines, Inc. SAVE shares are down on Wednesday, causing investor concern. The airline has not filed its recent earnings report and is in discussions with creditors to create a restructuring plan.

Potential Upside: Despite these challenges, there is speculation that the stock could rise, making it our Stock of the Day.

Financial Overview: In the second quarter, Spirit Airlines reported a loss of $1.76 per share, a decrease from a loss of $1.36 per share in the first quarter, as reported on Benzinga Pro.

Some traders are eyeing possible profit opportunities, anticipating a short squeeze that could drive the stock price higher.

Short Selling Explained: Short sellers borrow shares to sell, hoping to buy them back later at a lower price. Their goal is for the stock price to drop, allowing them to return the borrowed shares and pocket the price difference.

If the share price rises instead, short sellers face potential losses. Some may choose to buy back the shares early to limit their losses, which can further push the stock price higher. This reaction can create a snowball effect among other short sellers, escalating the price even more.

Currently, Spirit Airlines has a short interest of 35%, indicating that this percentage of outstanding shares has been sold short. This figure is notably high compared to companies like Apple, which has a short interest of less than 1%.

The mechanics of a short squeeze mean that short sellers will need to repurchase shares at some point, often disregarding the price if it continues to rise. This scenario can lead to a rapid increase in stock prices as panic buying occurs.

Traders recognize that markets can behave unpredictably. Even in a negative news environment, stocks such as Spirit Airlines could still experience upticks. Traders should stay alert to these potential shifts.

Looking Ahead: Markets showed some improvement as inflation data aligned with expectations, leading to a rebound in stocks, particularly small caps and bonds.

Photo: Courtesy Spirit Airlines