T-Mobile Stock Short Sellers Face Looming Challenges: Here's Why

Key Points

• T-Mobile stock could become one of the top picks in the coming quarters despite recent rallies to all-time highs. 
• Wall Street analysts are warning short sellers to stay away from the stock, which has the leading EPS growth in the space. 
• The company's recent financial results show how a new all-time high could be the stock's next target. 

Going against certain stocks in today’s economy may be a logical choice for some trying to call market tops. However, not all stocks are made equal. For reasons that will become clear for investors in just a bit, stocks that offer markets a steady – and predictable – stream of cash flows are the ones that will likely call for more investor buying power in the next few quarters.

Filtering by this short description list, investors will likely come across hundreds of stocks that fit the search criteria. To save some time, one poses more upside than others due to its currently high short interest: T-Mobile US Inc. NASDAQ: TMUS. When stocks have a short interest level higher than usual, they can get set up for a short squeeze.

What’s a short squeeze? It’s when a stock price rises for various reasons, bringing short sellers to maximum pain in their losses and forcing them to exit their positions. When someone short sells a stock, the only way to exit the position is to repurchase the stock at the market price, and when short sellers buy back stock on masse, a rally ensues.

Here’s one of the main reasons why T-Mobile stock may be a potential short squeeze play for investors to ‘squeeze’ in the coming quarters.

T-Mobile Stock Analysts Defy Short Sellers with Upbeat Forecasts

Wall Street analysts are fighting the good fight, as they now forecast up to 23.6% earnings per share (EPS) growth for T-Mobile stock in the next 12 months. This would place the company above peers like AT&T Inc. NYSE: T and Verizon Communications Inc. NYSE: VZ, which are only expected to grow by 4.5% and 2.6%, respectively.

Because T-Mobile stock now has up to 5.7% of its outstanding shares in short positions, or roughly a dollar value of $4.4 billion, completing analyst predictions for higher earnings could be one of the catalysts to send these bears running eventually. But, the stock will need more than just the short sellers to buy it if it wants to deliver a good rally.

More market participants could be glad to own T-Mobile stock, as today’s economy surely makes subscription-based businesses in the consumer discretionary sector like T-Mobile or even Spotify Technology NYSE: SPOT a desirable place to be.

The U.S. GDP growth rate has now been revised to only 1.3% in the past quarter when inflation remained above 3%. This fits the description of stagflation, and having predictable cash flow is one way to beat it.

Regardless of whether the economy is booming or busting, consumers are likely to make room in their budgets for essential services like phone services. Knowing that these trends stand the test of logic, sentiment, and time, other analysts were willing to share their views.

TD Cowen saw fit to boost their price targets for T-Mobile stock to $202 a share, daring it to rally by 14.3% from where it sits today. The stock's current price is also 97% of its 52-week high, and it also happens to be near a new all-time high.

Pushing for further double-digit upside near an all-time high requires analysts' guts since they need a solid reason to expect another run higher.

T-Mobile Stock's Financial Momentum Keeps Markets Bullish

To get the additional push they need, markets can look inside T-Mobile’s past quarterly earnings performance. In the company’s press release, investors can almost feel management’s pride in quoting net account additions of 218,000 for the quarter, which is the “best in the industry.”

But that’s not the only metric that is apparently the best in the industry; customer additions of 1.2 million in the quarter also fit this category. Postpaid phone churn of 0.86% signals that it isn’t only new customers that are happy but also existing ones, adding to the steadiness and predictability of T-Mobile’s cash flow.

Speaking of cash flows, T-Mobile’s financials will show free cash flow (operating cash flow minus capital expenditures) growing from $7.7 billion a year ago up to $9.2 billion today; that’s a jump of 18.3%, not bad for a ‘boring’ phone plan company.

Adding to this growth path forward is 5G. As 75% of T-Mobile’s customers are on 5G services, and management quotes current account levels to be the best in the industry, investors can begin to justify a path to meet analyst EPS projections.

This path is good enough for the Vanguard Group (T-Mobile’s largest shareholder) to buy, boosting their stake by 3.8% in the past quarter to bring their net investment to $7.4 billion.