Short borrow fee rates for Mullen Automotive (NASDAQ:MULN) spiked over the weekend after short sellers began exhausting the available shares to sell. According to data from Fintel, fee rates have now risen from 10% last week to 185% today.

Experienced traders will immediately sense an opportunity. Rising fee rates signal a supply-demand imbalance, and Mullen’s skyrocketing figures mean shorting the stock has become an extremely crowded trade. Few liquid stocks remain above a 100% fee rate for long, and history tells us that many of these turn into massive short squeezes. GameStop’s (NYSE:GME) 33% post-earnings jump last March was partly fueled by an “accidental” short squeeze in its shares.

In other words, Mullen could see a short squeeze as early as this week.

Though the EV startup will still struggle with rising competition and dwindling cash reserves, short-term traders finally have a reason to like Mullen’s stock again.

MULN Stock Could Squeeze This Week

A friendly reminder: Mullen’s beaten-down shares could become worthless in the long run. As I noted last week:

A strict, bottom-up valuation of Mullen paints a grim picture. Though the firm supposedly has over $100 million of available cash, its liquidity situation looks far tighter… Mullen could struggle to produce the 1,000-vehicle order recently announced.

Even if the company could recoup the value of its Bollinger and Electric Last Mile Solutions acquisitions, the firm is now carrying far too much debt for equity holders to own much.

The company also has significant corporate governance issues that should keep most investors away.

Still, these facts matter less to short-term swing traders and hedge funds. In 2022, for instance, a college student made $110 million trading meme stock Bed Bath & Beyond (OTCMKTS:BBBYQ). The retailer would collapse less than a year later. And failing enterprise like Sears Holdings offer plenty of opportunities for profit before they go to zero. I’ve noted before that shares of the department store doubled at least eight times in the years leading up to its delisting.

Mullen’s recent trading presents a similar opportunity on a compressed time scale. The company has an intensely loyal following on social media, making “swarm trading” far more likely. And the sudden rise of borrowing rates means it’s likely that short sellers could blink first. Today’s 185% interest rate means short sellers need the stock to zero out by December to break even.

How High Can Mullen’s Stock Go?

A study by The CXO Advisory Group found that the average short squeeze rises 27% within two days of its initial jump. Such a squeeze would price Mullen’s shares at roughly $1.60.

History, however, tells us this figure is typically far higher for meme stocks. GameStop’s (NYSE:GME) squeeze in 2021 saw shares rise 1,600% within days. The rise of Dogecoin (DOGE-USD) was almost as dramatic. That means Mullen’s stock could rise 5X or more.

First, consider Mullen’s niche fame. The Brea, California-based firm consistently ranks among the top-5 assets mentioned on stock sites like Stocktwits, a popular social network for day traders. These traders are generally hypersensitive to price action, making a short squeeze more likely.

Second, the EV firm’s management has perfected keeping retail investors engaged. The company continuously offers positive press releases, no matter how questionable the news. A well-timed release about its ongoing short-selling investigation could send the stock soaring.

Finally, Mullen has a hyperactive options ring that can contribute to a gamma squeeze. Speculators buying call options generally cause market makers to buy an offsetting leveraged long position in the stock, which means every $1.00 invested in options is much like buying $10 of shares.

Still, investors need to temper their expectations. Mullen continues to have high trading volumes, with 100% of its float turned over once every 12 days. That provides ample liquidity for short sellers to get out, even if at a loss. The company also has a relatively smaller following than popular assets like GameStop or AMC Entertainment (NYSE:AMC), limiting the chance of a 10X spike.

That means a short squeeze in Mullen could send shares up anywhere from the $2 range to the $5 range, depending on how many retail investors suddenly hop on board and assuming a squeeze happens in the first place.

What’s Mullen Stock Worth?

Last week, I showed a bottom-up valuation that priced Mullen at $1, a 25% downside. That figure included 100% of goodwill, 50% of its intangible assets, and assumed debtholders converted all outstanding loans into equity.

Of course, these assumptions are probably too rosy. Mullen’s goodwill is likely worth far less than what’s on its books. No carmaker would buy subsidiary Bollinger’s intellectual property for $148.2 million today when the entire enterprise value of rival Workhorse (NASDAQ:WKHS) is worth a third of that figure. Nor are Mullen’s intangibles likely worth 50% of its stated value. To reach that inflated amount, the firm needed to use the Relief from Royalty Method, a highly subjective method typically used for trademarks. A potential buyer will unlikely do the same.

A more accurate prediction of Mullen’s worth might value intangibles at $10 million and assume a 20% dilution when debtholders convert to equity. That puts Mullen’s remaining value at $0.11, assuming the firm has the available cash it claims to have.

Nevertheless, Mullen’s recent short-share order imbalance should have short sellers worried. We’ve seen this story before in other meme stocks.

And the most dangerous thing to assume is that this time is any different.

As of this writing, Tom Yeung did not hold (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.