Shares of Medallion Financial were up by more than 16% in premarket trading on Monday after Barron's said over the weekend that the stock was a buy.
Medallion, which finances taxi medallions in New York and other major cities, has seen shares fall about 60% from their all-time high over the past couple of years as the price of taxi medallions has declined.
Economist Mark Perry has called this "The Uber Effect."
But in a report over the weekend, Barron's said the decline in the stock had been overdone.
Barron's thinks the selling in the stock is overdone in part because the company's taxi-medallion portfolio, which has garnered much of the attention from investors, accounts for only 51% of the company's overall portfolio and just 19% of its interest income.
Barron's noted that 64% of Medallion's earnings came from consumer loans, and one portfolio manager told Barron's: "People have certainly overestimated the trouble Medallion is in ... This Uber thing is overdone. Uber isn't going to drives taxis out of business. It's both — not either/or."
Barron's also noted that 15% of Medallion shares were being sold short, with investors betting that the price will fall. When investors bet against a stock, they borrow shares in hopes of buying them back at lower prices and pocketing the difference.
But when you're betting against a stock, you have to pay out the dividend to shareholders you borrow shares from, and one analyst told Barron's that some could get squeezed out of their positions as Medallion's $0.25/share dividend comes due.
Read the full report at Barron's »
NOW WATCH: The 'Uber of seaplanes' is taking elite New Yorkers to the beach
See Also:
- Alibaba shares are getting slammed after this weekend's brutal report in Barron's
- Alibaba responds to Barron's smackdown: 'A clear and compelling case for the lack of integrity, professionalism and fairness'
- One Alibaba bull thinks that the brutal Barron's takedown has 4 problems
SEE ALSO: GoPro is getting slammed after a negative mention in Barron's
