Universal Security Instruments, Inc. (NYSEAMERICAN: UUU) is running for the top in the market this morning. However, if you’re looking for the news that acts as the catalyst for the run, you’ll be hard pressed. There have been no press releases or SEC filings and the move seems to be purely technical. Here’s what’s going on:
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- UUU Stock Squeezes the Shorts
- What Is Universal Security Instruments?
- Risks to Consider Before Buying UUU Stock
- Final Thoughts
UUU Stock Squeezes the Shorts
As mentioned above, Universal Security Instruments is running for the top in the market this morning, but there has been no news released and investors are wondering what the catalyst that started the move was.
I’ve done some digging, and I can’t seem to dig up a catalyst, but there are some interesting facts to consider that are likely leading to the tremendous gains in the stock.
Recently, UUU stock has traded with some pretty heavy short interest. When the stock started to tick up, those who shorted the stock began losing money. This led the shorts to race for cover, purchasing shares to return those they borrowed in hopes of declines. Ultimately, it’s a short squeeze.
Then, when you look at the public float, it’s clear to see why the squeeze sent the stock flying so high. We’re talking about a stock with a float of less than 2 million shares. That’s ultra-tiny and brings the law of supply and demand into play.
When there is high demand for shares, those with tiny floats see dramatic price appreciation. Considering the short squeeze, demand ticked up and the price started to scream for the top.
What Is Universal Security Instruments?
Universal Security Instruments designs, manufactures, and sells security instruments. In particular, the company is an important player in the smoke detectors market.
Recently, UUU stock caught the attention of investors after DPW Holdings, a technology and cryptocurrency company, announced that it would be snapping up shares, purchasing 9.9% of the company.
Risks to Consider Before Buying UUU Stock
Any time you decide to invest, you’re making the decision to accept risk. An investment in UUU stock is no different. Before investing in the stock, you should consider the following risks:
- The Company Doesn’t Make Money. Sure, Universal Security Instruments drives revenue through the sale of its products, but that revenue isn’t enough. Over the years, the company has a history of operating at a loss. If the company can’t turn a profit before it runs out of cash, it will need to raise money, likely through the sale of newly issued shares, diluting value for existing shareholders.
- Penny Stock Risks. UUU is a penny stock. That means that the stock is riddled with high levels of volatility and speculation. Moreover, like most penny stocks, its business model is largely unproven.
- Short Squeeze Reversal. When short squeezes happen, the stocks won’t stay at the top forever. At some point, profit taking will happen, leading to a reversal. You don’t want to be left holding the bag when sellers start to take hold.
All in all, there’s a good reason for the run. It’s a short squeeze. What the catalyst was that started the move, well, I have no idea. Short squeezes make for exciting gains, but you should only play this move if you know what you’re doing. With profit taking all-but guaranteed in the near future, your timing will have to be great to make any money at these levels.