LAIX Stock: Yet Another Massive Short Squeeze in Play

LAIX Inc (NYSE: LAIX) is screaming for the top in the market this morning, but if you’re looking for news that might act as the catalyst, you’ll be hard pressed to find anything. The company hasn’t issued any press releases or filed anything with the SEC. So, what’s the deal?

This seems to be a coordinated effort on social media to squeeze the shorts, much like what we saw from ATA Creative Global yesterday. Here’s what’s going on:

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Social Media Sends LAIX Stock Skyrocketing

As mentioned above, LAIX is screaming for the top in the market this morning, but hasn’t issued any news via press release or SEC filing. Ultimately, it seems as though Redditors on the Wall Street Bets page and other social network participants are launching a coordinated effort to send the price of the stock up. 

This is the type of move that we’ve been seeing during the big short squeeze over the past couple of weeks. 

Essentially, retail investors have grown tired of hedge funds shorting stocks, costing the little guy money in the end. As a result, retail investors have waged war on hedge funds, looking for short squeeze targets, and squeezing the funds out of the tickers. 

That seems to be exactly what’s happening with LAIX this morning, and the gains could be very far from over. 

This Short Squeeze Could Go Far Higher

The fact of the matter is that short squeezes can lead to massive gains. In fact, in the premarket yesterday, ATA Creativity Global was up by nearly 1,000% at its highest point yesterday, and LAIX stock could see much of the same. 

Yesterday, the short volume on the stock was around 85%. In fact, short selling on the stock is so bad that if you wanted to open a short position, you couldn’t have on WeBull yesterday as there were no shares available to short. 

Sounds like a perfect short squeeze target, right?

But wait, it gets better. 

LAIX stock currently trades with a public float of under 27 million shares. That means that shares of the stock are in relatively short supply. 

The law of supply and demand tells us that when supplies are limited and demand rockets, the price has to rocket in order to keep demand in check with supply. When there’s only 27 million shares of a stock available for trading and a short squeeze takes place, demand for shares skyrockets, leading to dramatic gains. 

As such, this short squeeze is likely far from over and could produce the kind of mid-session gains that we saw out of ATA Creative Global yesterday as well as several other stocks throughout the Big Short Squeeze. 

What Is LAIX

LAIX is ultimately a technology and education company. The company uses proprietary artificial intelligence technology with the goal of popularizing learning the english language. 

To add to the popularity of the stock, LAIX is a Chinese company, garnering attention from emerging markets players and leading to positive opinions as a result of the change in political climate. 

Risks to Consider Before Buying LAIX Stock

If you’re going to buy LAIX stock, you’re going to have to accept risk. After all, risk is always part of investing. When it comes to LAIX, here are the most significant risks to consider before diving in:

  • Penny Stock. LAIX is a penny stock, which increases the risk associated with an investment. As a penny stock, it experiences heavy levels of volatility and operates a business model that’s not yet fully proven, making it a highly speculative bet. 
  • Emerging Markets. Emerging markets plays can be a dangerous concept. While China is emerging quickly, it’s common for emerging markets to hit bumps in the road, and when that happens, those involved in these markets often experience significant declines. 
  • Capital Risk. LAIX is far from profitability. If the company can’t turn a profit before the money in its bank account dries up, it will likely look to public markets as a way to raise funds, resulting in the dilution of existing shareholder value and likely significant declines. 

Final Thoughts

While there are risks to consider here, there’s no denying the potential for significant short term gains as the short squeeze takes hold of the stock. The fact of the matter is that over the past couple of weeks, we’ve learned that when retail investors latch onto a ticker, there’s potential for significant growth over a very short period of time. That seems to be the case for LAIX stock today.