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Cal-Maine Foods Inc. (NDAQ: CALM) shares rose marginally after CNBC's Jim Cramer recommended the stock on his Mad Money Lightning Round. The hedge fund manager turned television star believes that the stock represents a solid play into a short squeeze. Many traders do not like CALM despite the fact that it's a good business with a lot of insider buying. However, Cramer warns investors to purchase the stock based on egg fundamentals rather than the short squeeze itself.
A short squeeze occurs when there is a lack of supply and excess demand for a stock, which results from short sellers covering heir position on a stock. In this case, short sellers of Cal-Maine Foods may automatically cover their positions if the price rises, which could increase the stock price and triggle additional covering. As a result, short squeezes can often represent a quick opportuniy to profit if the price of a heavily-shorted stock like Cal-Maine Foods jumps higher.
During their latest quarter, Cal-Maine Foods saw a their fourth quarter profits soar on strong demand and pricing for eggs. Profits rose 99 percent to $36.6 million from $18.3 million a year earlier. Revenues also jumped 39 percent to $235.6 million from $169.9 million. High prices for eggs and strong demand boosted results while the overall supply of eggs was slightly lower than last year, which provided a better balance in the market.
Cal-Maine Foods Inc. is a producer and marketer of shell eggs in the United States. The company's primary business is the production, grading, packaging, marketing, and distribution of shell eggs. The company sells these eggs in 29 states, primarily in the southwestern, southeastern, midwestern, and midatlantic regions of the United States. The company also produces and markets specialty shell eggs in the United States, such as reduced cholesterol, cage free and organic eggs.
Shares of Cal-Maine Foods jumped $0.27, or 0.68%, to $39.51 per share on the day.
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