Yellow logs of cream. Hot and ready. (NASDAQ: TWNK)
Sup apes. Long time creeper, first-time poster. Open up because I’m about to put a cream-filled log in your face. For this is the hour of the TWNK. I’m sure you’re all familiar with what Hostess sells if you went to school and packed lunch in the last … ya know… 100 years. That should be most of us I think.
Before I get going I have to credit a few wrinkle brains who’ve helped me learn a ton and provided data.
u/pennyether (his SMELL system was the original reason I started looking at this)
Before we get too far, I don’t think this is a pure squeeze play. It is going to be a short interest assisted play. So some basics, The Hostess brand was originally introduced in 1919 and a privately held company for the majority of its history. During the time they became an American icon in the snacking scene. Making Twinkies, cupcakes, dingdongs, etc. The original company (Interstate Bakeries) filed for chapter 11 and a new company was formed through a SPAC in 2013. You can read more HERE but the important bits are, they reformed the company with new backers (The Gores Group) and went public with an offering valued at $2.3 billion. Since then they have been doing good work on increasing market share, increasing sales, and acquiring additional businesses and bakeries to increase their leverage in the segment. Just look at the fancy graphs.
In Q1 of this year their year over year net revenue grew 9% and their adjusted EBITDA grew 22.5% They have been kicking ass and taking names.
- In 2016 they acquired Superior Cake Products
- In 2018 they purchased two more bakeries from a competitor Aryzta
- In 2019 they purchased Voortman Cookies Limited in order to diversify their product offering
Check out more details on that last one from THIS exhilarating article
WSB: Fun_for_Awhile WTF are you telling us about this boring boomer shit for? You know how we feel about reading and fundamentals.
The boring stuff is what makes this play different. No hate on some of the recent plays like GOEV or CLOV (I was in both) but those companies had an actual case to be made for why their short interest was so high. TWNK is a solid company that has been grinding its way back instead of some hail mary that a start-up company will magically announce something as a catalyst. And the result is this…
Since they got shorted to oblivion 3/20 last year, they have been showing what they are made of. Solid and consistent rise up to new all-time highs. From a low of $9.50 to the current $16.29.
Everyone’s favorite topic. Data from Yahoo and Ortex
Outstanding Shares: 131.6M
Shares Short: 25.4M
Short % float: 19.42%
So here is what is curious about this one. Short interest has continued to build over time even as the price has made a nearly straight line up and to the right. That is until it peaks in mid-May and some of the shorts started to make an orderly exit. Here is an easier graph to see.
Playing with Cryaons
So here is where things get interesting. The short interest going down is actually a good thing for us in this case. It tells us that at least some of the shorts have recognized that bears R fUk. They have been buying in with more short selling and the price has been continuing to put them underwater.
Check out this one year graph where we can see a great trend right up until the price crosses $16 dollars. Some of you who are better with crayons can probably also draw us a channel that it lived in while it cruised up.
As soon as it crosses the $16 mark things change for our delicious twinkies. So what happens? The remaining shorts that aren’t exiting their position have reached a critical threshold where the play is going to go tits up. Let’s zoom in on the recent trading.
The stock started trading sideways with some extremely hard support and resistance. The longs are putting in a ton of volume any time it drops below the $16 mark intra-day. The shorts do a classic short selling price crash any time it crosses the $16.50 line. They have shown their hand that this is a critical threshold for their position. If you look at the volume bars you can start to see some of the battles being fought at critical support and resistance lines between the heavy hitter long/shorts. This is not retail trader stuff. Those larger spikes are 1.5-2 million shares in a few minutes. That’s about 2.5x the daily average volume in just a couple of minutes. There is further evidence to support the theory that $16.50 is a breaking point. SI was starting to decrease until it crossed into the current channel. Since then, SI started increasing again as they NEED to hold down the price. That brought the current SI back up to a new peak just recently as they try to beat it down.
Earnings Wed, August 4th
Earnings are upon us and things are looking good. Here are a few quotes so you can listen to someone besides me talk for a bit.
Four analysts have made estimates for Hostess Brands’ earnings, with the highest sales estimate coming in at $277.49 million and the lowest estimate coming in at $268.85 million. Hostess Brands reported sales of $256.23 million in the same quarter last year, which would suggest a positive year-over-year growth rate of 6.3%.
Based on analysts offering 12 month price targets for TWNK in the last 3 months. The average price target is $17.67 with a high estimate of $18 and a low estimate of $17.
Forward guidance from last quarter
Hostess continues our strong profitable growth with our 13th consecutive quarter of revenue growth in the first quarter and very strong momentum leading into the second quarter. Turning to our outlook. Given the strength of how we started the year, we are increasingly confident in our ability to achieve our full-year guide. We continue to expect to drive net revenue growth of 3% to 4.5% and expect adjusted EBITDA between — to be between 255 million and 265 million with adjusted EPS of $0.80 to $0.85 per share. Looking forward, we feel confident in our ability to manage margins as we move through the remainder of the year.
So we have a price that has been heading up for a full year, short-sellers that are under water and under a lot of pressure, a last ditch effort to hold the price down below $16.50, and long whales that are fighting the good fight and holding a strong floor at $16. Analysts are predicting a good earnings report and the price target is consistently above our 16.50 magic number.
WSB: So why no squeeze? Do you have so many bananas in your ass it’s affecting your brain function?
Well, maybe, but what I do in my free time isn’t your concern. A true squeeze needs 3 things
- High short interest (check)
- A catalyst (earning check)
- Low liquidity (womp womp womp)
The last point there is the only reason I don’t think this will be a classic squeeze play that lands on Uranus. So why are we talking about this? Because there is still a ton of short interest that has to be bought back that will dramatically accelerate what is already great momentum once the price breaks out of the current channel. I expect a significant jump higher. The low and slow unwinding of the short interest will make this a more stable but still very lucrative play. The price has plenty of room to run with 25M shares short that need to be bought back.
- Price has been steadily climbing
- Shorts have been getting their balls kicks for a straight year now. The pain is becoming unbearable
- Current price channel is being tested by the long side to break out over $16.50
- Earnings are coming up and should provide a nice catalyst to kick off this party
- Twinkies will turn into tendies
Positions: 17.5C, 20C, 22.5C
Should go without saying but…
I am a monkey brained idiot, not a financial advisor. This entire post represents my personal views and opinions, and should not be taken as financial advice (or advice of any kind whatsoever). I encourage you to do your own research, take anything I write with your morning stupid pills. If you want real advice, pull the bananas out of your ass and head over to /investing.
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July 21, 2021 at 05:39AM