Article content continued
Now, some investors are trying to bring the same approach, known as a short squeeze, to the silver market. But even as the price of silver surged, and one company in particular, Vancouver-based First Majestic Silver Co. rose 31 per cent in early trading on Monday morning, analysts cast doubt that the Redditors could repeat the success they found with GameStop in the silver market.
“All things being equal there’s a lot of different dynamics,” said Don DeMarco, an analyst with National Bank Financial who covers First Majestic. “I just don’t think you’re going to get the same returns (as they did) with GameStop.”
When you have an elevated valuation with a tax liability … the combination contributes to a short interest
Don DeMarco, an analyst with National Bank Financial
Although DeMarco had recommended investing in First Majestic, it was far from the top of his picks. For one thing, it’s always been expensive compared to peers, based on the ratio of its share price to the net value of its assets, by his analysis about 2.47, he explained to the Financial Post.
Plus, in Mexico, where the company operates three silver mines, tax authorities are seeking to criminally prosecute First Majestic’s local entity for tax fraud. On Monday, it raised the amount it is seeking from US$267.8 million to US$534 million, according to a Reuters report that cited a source who had seen audits of the company dating back to 2010.
“When you have an elevated valuation with a tax liability … the combination contributes to a short interest,” said DeMarco.
Reddit investors may be focused on First Majestic because among silver miners, it has the highest ‘short interest’ at 23 per cent — meaning 23 per cent of its outstanding shares have been sold short by investors who believe the stock price will decline.
