Rising short interest in a stock usually means a lot of investors are betting against it. That's the story with Wendy's right now, but there's a twist: a potential buyout could turn those bets into a disaster for short sellers.

Let's break down what's happening.

Short Sellers Take on Wendy's

Fast food stock Wendy's Co. (Wendy's (WEN)) has had a rough year. The company is trying to turn things around, but sales have been declining, and the stock has been falling. That's exactly the kind of situation short sellers love.

Data from S3 Partners shows short interest has hit 54 million shares of Wendy's, an increase of 94% year-to-date. That's a lot of bets against the stock.

To put it in perspective, there are about 60 million active long shares and 54 million active short shares. That gives a long/short ratio of 1.1x. S3, which is well-known for tracking short interest, calls this "battleground territory."

The borrow cost is 5.88%, and the borrow utilization rate is 92%. S3 also gives Wendy's a Squeeze Score of 100 out of 100, meaning conditions are ripe for a short squeeze if good news sends the stock higher. MarketDash data shows 34.1% of the Wendy's float is currently short.

Take Private Deal Could Burn Shorts

Here's where it gets interesting. A recent report from the Financial Times said Nelson Peltz's Trian Fund is working on funding to take Wendy's private. Peltz and Trian own around 16% of Wendy's stock and have two seats on the board. Trian has a history with Wendy's going back more than 20 years.

When news of the potential buyout broke, Wendy's shares jumped 17%. But short sellers didn't flinch. According to S3, they actually added 3.9% more shares to their positions. That means they're betting the deal won't happen.

Declining sales have hurt Wendy's, and short sellers think the trend will continue. But Wendy's just posted a double beat for the first quarter, beating analyst estimates for both earnings per share and revenue. That's the fourth straight double beat, which suggests things might be improving.

Trian has said Wendy's is "undervalued," and a takeover offer would put its money where its mouth is. With 16% ownership, Trian is looking to international investors to help fund a deal for Wendy's, which has an enterprise value of around $5 billion.

Takeover activity has been picking up in the restaurant sector because of lower valuations, but there's no guarantee investors will back Trian's attempt. Still, with Wendy's shares down significantly over the past five years, current shareholders might be willing to sell at a low premium.

For short sellers, the bet is that things get worse for Wendy's and the buyout falls through. If a buyout offer does come, shares could soar, and shorts would need to cover or face a squeeze. On the other hand, if Trian announces it's no longer considering a buyout or sells its stake, shares could drop sharply, and short sellers would win.

Wendy's Stock Price Action

Wendy's stock trades slightly down 0.26% at $7.60 on Friday, within a 52-week range of $6.37 to $12.51. The stock is down 6.4% year-to-date in 2026 and down 33.5% over the last year.

So, is a short squeeze cooking up? The data says the ingredients are there. But as always, it depends on what happens next with that buyout.