Mister Car Wash Stock (NYSE:MCW): The Next Short-Squeeze Opportunity?
Stock Analysis & Ideas

Mister Car Wash Stock (NYSE:MCW): The Next Short-Squeeze Opportunity?

Story Highlights

While companies with significant bearish interest should generally be avoided, Mister Car Wash presents an intriguing case due to a mixture of speculative fervor and fundamental justification. Thus, MCW stock could be an attractive wager.

In most circumstances, retail investors should avoid enterprises that have significant bearish interest. However, it’s possible that an exception to this rule can be made for Mister Car Wash (NYSE:MCW), a provider of conveyorized vehicle washing services. Its positive fundamentals, along with broader interest in speculative ideas, make MCW stock intriguing. As a calculated, high-risk wager, I am bullish on this unique market play with short-squeeze potential.

MCW stock has fallen 63.6% in the past three years.

Setting Up the Short Squeeze for MCW Stock

Let’s talk about the obvious upside catalyst for MCW stock – the potential short-squeeze opportunity. Currently, Mister Car Wash shares carry a short interest of 13.23% of their float. Further, the short-interest ratio clocks in at 13.28 days to cover. To understand why these metrics matter, we must understand the basics of shorting.

In the typical investment framework, an individual or entity purchases a security in the hopes that it rises. If it does, said party may sell the security for a profit. However, with shorting, the opposite directive holds true. An individual or entity sells a security in the hopes that it falls.

For shorting to actually materialize, a bearish trader must first borrow the security in question from a broker. Once acquired, the trader sells the securities immediately with the belief that they will decline in value. If they do fall, the bearish party can pick up the target security cheaply. This way, they can return the borrowed securities back to the broker while pocketing the difference.

Of course, it goes without saying that traders attack enterprises that appear to have negative forward prospects. If bears targeted viable enterprises, they would risk buying back shares at a higher price in order to fulfill the obligation to the broker. Further, the buying activity itself can create a positive feedback loop – in other words, the short squeeze – sending the target security skyward.

For MCW stock, more than 13% of its float – the number of shares available for trading – is held short. Further, based on average trading volume, it would take more than 13 trading sessions to cover the bearish position.

Ordinarily, a security incurring high short interest and high short interest ratio is a bad sign. However, contrarian speculators look at the matter as boxing in the bears. If MCW stock rises, it will take a long time for the shorts to unwind their positions. Thus, Mister Car Wash could attract attention.

Mister Car Wash Enjoys an Expanding Addressable Market

According to analysts at Research and Markets, the U.S. car wash services sector could reach a valuation of $23.78 billion by 2030. If so, that would represent a compound annual growth rate of 5.5%. With MCW stock’s market capitalization of $2.44 billion, the underlying enterprise features a robust total addressable market.

Per the research firm, “Daily schedules continue to become increasingly hectic, and growing focus towards vehicular maintenance, drive to reduce operating costs and rise in sustainable car washing methods emerge as key factors propelling the U.S. car wash service industry.” In other words, people will want to save time, which should boost MCW stock.

Another factor that could propel Mister Car Wash forward is the complete normalization of the workforce. Yes, the work-from-home narrative has been huge since the COVID-19 crisis. However, with fears of the virus having faded away, more and more companies could start requiring a return to the office. If that happens, people will have even less time on their hands, making MCW stock quite compelling.

It’s also interesting that analysts, on average, anticipate Fiscal 2024 revenue to reach $1 billion. That’s up 8.1% from last year’s print of $927.07 million. Even the least pessimistic target calls for sales of $995 million, which would represent a 7.3% growth rate.

Therefore, MCW stock is an attractive investment when considering the industry’s projected growth and forecasted sales expansion. At the very least, one should consider avoiding betting against MCW because such a tactic would likely be painful.

Adjusting for Reality

Right now, MCW stock trades at a trailing-year revenue multiple of 2.74x. That’s rather steep compared to the specialty business services’ metric of 1.44x. Still, with revenue projected to grow at least 8% in Fiscal 2024, a valuation adjustment may be necessary.

Assuming that revenue for this year lands at $1 billion and assuming the same share count of 328.2 million shares, MCW stock is essentially trading at a forward sales multiple of 2.54x. At the most optimistic price target of $1.02 billion, MCW would be trading at a 2.49x forward sales multiple.

It would still be trading higher compared to the specialty business services sector. However, the takeaway is that Mister Car Wash is more attractive than the immediate valuation suggests.

Is MCW Stock a Buy, According to Analysts?

Turning to Wall Street, MCW stock has a Moderate Buy consensus rating based on five Buys, four Holds, and one Sell rating. The average MCW stock price target is $9.67, implying 29.6% upside potential.

The Takeaway: MCW Stock Is Risky for the Bears

When it comes to shorting, bearish speculators must choose wisely. For them, Mister Car Wash appears to be a poor idea, given that the underlying industry is projected to rise. In addition, analysts see solid growth for the enterprise, which means MCW stock could rise. If so, the implied positive feedback loop could make the vehicle washing specialist a surprisingly attractive investment.



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