Stock Market

Geo Group Still Appears to Be a Good Value Even After Reddit Run

They’re not gangsters; they’re meme-sters. Evidently, Reddit users targeted Geo Group (NYSE:GEO), of all companies, for a wicked short squeeze. And all of a sudden, traders love to talk about GEO stock.

Source: Shutterstock / TY Lim

The crowds are fickle, aren’t they? It seems like just yesterday when I couldn’t get anybody to pay attention to Geo Group.

Perhaps a business that provides rehabilitation services for prisoners isn’t “sexy” enough for most traders. If it took a Reddit raid to get eyeballs on this company, so be it.

Now that Geo Group has your attention, it’s a great time to explore a fascinating company that’s been catapulted from obscurity to infamy. Just maybe, you’ll find it’s worth your investment capital.

Remembering a Pricier GEO Stock

First things first: GEO stock is an excellent pick for value hunters.

Even after the apparently Reddit-fueled rally, the stock’s trailing-12-month price-to-earnings (P/E) ratio is just 6.05.

In a market rife with high flyers that trade at obscene valuations, this is a rare and compelling bargain.

Back in summer of 2017, GEO stock traded at $30 and higher.

Since it’s sometimes pigeonholed as a “private prison stock,” some folks may have speculated that the share price would climb if former President Donald Trump enacted tough-on-crime policies.

As it turned out, that wager didn’t pan out too well. Irrespective of Trump’s policies, GEO stock commenced a dreadful multi-year decline.

By November of 2020, the share price had already fallen to $10. Then, if you can believe it, things got even worse for the stockholders.

No Biden Bid

In case you didn’t get the memo, President Joseph Biden was elected as the U.S. president in November, and he’s not a huge fan of private prisons.

Geo Group isn’t exactly a “private prison company,” inasmuch as it doesn’t build private prisons as its main business.

Rather, its primary business is providing “leading, evidence-based rehabilitation programs to individuals while in-custody and post-release into the community.”

Geo Group achieves this by deploying, among other things, vocational programs, cognitive behavioral therapy, substance-abuse treatment and faith-based services.

So really, it was little more than a knee-jerk reaction when the market tanked GEO stock in response to Biden ordering the U.S. Department of Justice to end the use of private prisons.

I would even go beyond “knee-jerk reaction” and contend that it was an outright overreaction. And, with market overreactions come opportunities for brave contrarians.

Painfully, GEO stock sank to a 52-week low of $4.96 in late May of 2021. It certainly didn’t help when the company announced a suspension of its dividend payments in April.

The suspense is thicker than oatmeal. Would anybody dare to save the stock from de-listing?

Reddit to the Rescue

Strictly speaking, I can’t prove that r/WallStreetBets users short-squeezed GEO stock.

Yet, there’s really no other reasonable explanation as to why the stock jumped in June from $6 and change to more than $10.

It’s not as if Biden did an about-face and praised private prisons. Nor did Geo Group releasing any game-changing news at that time, as far as I can tell.

Thankfully, I can count on my colleagues at InvestorPlace to get to the bottom of price moves of this magnitude.

Robert Lakin dove into the belly of the Reddit beast on June 9, observing the telltale short-squeeze signs and symptoms: “short interest is at 34.5%, 116.8 million shares are in the float and 121.63 million shares are outstanding.”

Nine days later, William White reported that “chairman and CEO George Zoley picked up an additional 166,644 shares of GEO stock.”

Insider buying is usually a good sign. So, at least the shareholders have that in their favor.

The Bottom Line

As of close on July 1, GEO stock was priced at $7.26. The Reddit rally seems to be over and done with.

It’s hard to know what to make of all this. There are still no dividend payments to collect, unfortunately.

On the other hand, the ultra-low P/E ratio suggests that there’s a prime bargain with Geo Group — no dreams of memes are required here.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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