SK Innovation's stock price rebounded on improved earnings forecasts. In particular, the rise in stock price is presumed to have been amplified by short squeezes affecting short-selling investors.
A short squeeze refers to the phenomenon where investors expecting stock prices to decline buy shares to cover losses when prices rise unexpectedly, resulting in further increases in stock prices.
SK Innovation's stock closed at 122,400 won on the 30th in the Korea Composite Stock Price Index market. The stock price increased by 25.15% (24,600 won) from the previous trading day. This marks the first time SK Innovation's stock has risen more than 25% in a single day since the price dropped sharply during the COVID-19 pandemic and rebounded in March 2020.
The assessment that SK Innovation's key businesses have reached a bottom has positively influenced investor sentiment. According to Hanwha Investment & Securities, SK On, a subsidiary of SK Innovation, has shown signs of improved operational rates. The complex refining margin has also risen to its highest level this year, reaching $10 to $11 per barrel, and the profitability of chemical products and lubricants has improved.
According to financial information provider FnGuide, securities firms anticipate that SK Innovation will incur an operating loss of 171.7 billion won in the second quarter (April to June) of this year but will turn to an operating profit of 288.9 billion won starting in the third quarter (July to September).
The short squeeze has also been cited as one of the reasons for the sharp rise in stock prices. SK Innovation's net short position rose from 23 billion won on March 31, when short-selling resumed, to 236 billion won on the 25th of this month. Considering that SK Innovation's proportion of floating stock is just over 40%, this corresponds to 4.3% of the estimated market capitalization (about 6.1 trillion won).
SK Innovation's average short selling price (transaction amount ÷ transaction volume) was 96,014 won per share as of the 27th after short-selling fully resumed. However, due to positive business outlooks, the opening price on that day was established at 107,100 won, creating immediate pressure as the shares sold at 96,014 won now need to be bought back at 107,100 won, resulting in a 10% unrealized loss.
The stock price of SK Innovation surpassed the 110,000 won mark just five minutes after opening and continued to rise throughout the afternoon. As a result, SK Innovation's stock price exceeded 120,000 won for the first time since March 28, just before short-selling fully resumed.
It remains uncertain whether SK Innovation's stock price will continue to rise. It has quickly surpassed the average target stock price set by securities firms at 119,170 won. The securities firm with the highest target price for SK Innovation is KB Securities, which proposed a target price of 143,000 won on the 17th.