Is Short Interest in Alaska Air Group (ALK) a Hidden Buying Opportunity?

In the world of contrarian investing, short interest often serves as a barometer of market sentiment. For Alaska Air Group (ALK), the latest data suggests a nuanced picture: while short sellers have positioned against 7% of the company's public float as of December 2025, this level of pessimism appears moderate compared to both historical trends and industry peers. Could this represent a hidden buying opportunity for investors willing to bet against the bears?

Short Interest: A Contrarian Lens

Short interest in ALK currently stands at 8.08 million shares, or 7.03% of the public float. This figure has declined by approximately 4.9% from November 2025, signaling a reduction in bearish bets. The short interest ratio (days to cover) is 2.14, meaning short sellers could theoretically cover their positions in just over two days at the average daily trading volume of 3.58 million shares. While this ratio is not exceptionally high-stocks with ratios above 5 often face greater short squeeze risks-ALK's relatively low level suggests that short sellers are not overly exposed to a sudden price rally.

From a contrarian perspective, low short interest can indicate underappreciated value. For context, ALK's short interest percentage is below that of peers like American Airlines (10.61%) and JetBlue (18.39%). This divergence implies that investors may be underestimating ALK's fundamentals relative to its competitors. Additionally, the low short borrow fee rate of 0.25% suggests minimal difficulty in borrowing shares, yet the lack of aggressive shorting activity further underscores a market that is not deeply bearish.

Market Sentiment and Analyst Optimism

Despite the modest short interest, recent market sentiment indicators paint a cautiously optimistic picture. Analysts have assigned ALK a "Moderate Buy" consensus rating, supported by 10 buy ratings and one strong buy, with a price target implying 34.6% upside from its current price of $51.38. Earnings growth projections are equally compelling: analysts expect a 29.52% increase in earnings per share over the next year, from $6.03 to $7.81.

However, the stock's price-to-earnings (P/E) ratio of 41.44 higher than both the Transportation sector and broader market averages raises questions about valuation. A PEG ratio of 1.05 suggests the stock is slightly overvalued relative to its growth prospects, but this metric must be contextualized with ALK's recent performance. The company reported $3.7 billion in revenue for its October 2025 quarter, a 2% year-over-year increase, and adjusted earnings per share of $1.05. These results, while not spectacular, demonstrate stability in a sector still recovering from pandemic-era disruptions.

Contrarian Risks and Considerations

A contrarian approach is not without risks. ALK's short interest, while low, is not negligible, and the recent news sentiment score of 0.51 (below the Transportation sector average) hints at lingering concerns. Additionally, the stock's elevated P/E ratio could make it vulnerable to earnings disappointments or broader market corrections. Investors must also consider macroeconomic factors, such as fuel prices and labor costs, which remain significant headwinds for the airline industry.

That said, the combination of improving short interest trends, analyst optimism, and solid earnings growth creates a compelling case for selective buyers. A short squeeze is unlikely given the low days-to-cover ratio, but the broader market's underestimation of ALK's resilience could create asymmetric upside for long positions.

Conclusion

For contrarian investors, ALK's short interest profile-modest by industry standards-suggests that bearish sentiment is neither extreme nor universally shared. While the stock's valuation metrics warrant caution, the alignment of analyst ratings, earnings momentum, and improving short interest trends points to a potential inflection point. As always, due diligence is critical, but the data indicates that ALK may be approaching a price level where the risks of short sellers' bets are outweighed by the long-term value of its fundamentals.