When traders start shorting stock in high numbers, it usually means that market sentiment in a company has turned sour. But, paradoxically, it can also lead to what’s known as a “short squeeze”, the phenomena which occurs when stocks jump unexpectedly higher, and short sellers have to liquidate their positions to avoid rising losses.
The short squeeze normally only happens when companies have high levels of short interest in their share float to begin with. With this in mind, here’s a list of highly shorted stocks that could potentially be the next big short squeeze.
Beyond Meat: 37% Short Interest, High Multiples
There was a time when plant-based food companies were the darlings of Wall Street, as shifting trends in secular eating habits looked set to make these businesses a fortune.
However, intervening events haven’t been kind to vegan stocks, and Beyond Meat Inc. (BYND), an early growth enterprise that initially exploded in value, appears to be one of the worst hit.
Shares in Beyond Meat have been falling since last summer, with more than 50% of its market cap decimated since then. The picture is even worse when you consider its historical highs, and, with short interest in the stock running at a massive 37%, investors have plainly signaled their pessimism for the firm at this juncture.
The worst thing for BYND is that it’s not just investor sentiment that’s down; the company’s business fundamentals are pretty lackluster too. What was once thought to be a solid product moat has turned out to be relatively porous, with the firm’s competitors, such as Impossible Foods, making inroads into its market share.
Furthermore, Beyond Meat’s profitability has tanked – its twelve month EBIT margin is negative 23% – and with a price-to-book ratio of over 19-times, it doesn’t even come cheap despite its depressed share value.
Arcitmoto Short Interest 33%
Electric vehicle (EV) company Arcimoto, Inc. (FUV) spooked the market recently with its announcement of an upcoming equity sales initiative.
The firm, which specializes in producing ultra efficient EVs – such as its three-wheel Fun Electric Vehicle – is looking to raise funds to pay for its next leg of product development.
However, the deal will involve selling a further $150 million worth of FUV stock, which will lead to a large degree of dilution, eroding the asset value of every current shareholders’ stake in the company.
The market’s response to this has been predictable: Arcimoto stock dropped slightly, while short interest in the company was high at 33%.
Interestingly though, FUV shares have started to rise lately, and its next earnings report is due out soon. Having missed its revenue and bottom-line targets for the third quarter, investors will be eager to see how the company’s performed this time round.
With so much of its float shorted right now, a good Q4 showing could easily lead to a short squeeze on this beleaguered EV stock.
Allbirds Massive Short Interest Hits 50%
Footwear and apparel manufacturer Allbirds Inc. (BIRD) is a relatively new player in the increasingly important sustainable fashion sector. The brand has built-up a sizably loyal fan base since it began trading in 2014, with the company deciding to go public in November 2021.
But recent worries surrounding the firm’s growth potential – and concerns that the company’s unique selling proposition (USP) could just be a fad – have led to increased short interest in the business.
In fact, the fraction of BIRD’s 19 million share float currently sold short stands at a massive 65%, suggesting the market believes Allbirds can fall further still, with the company already down over 50% from its IPO price last year.
There is some good news on the horizon, though; analysts Morgan Stanley upgraded the company from Equal Weight to Overweight, sending shares up 12% in pre-market trading post upgrade.
If positive momentum in the stock continues, this could very well precipitate a classic short squeeze scenario, with short sellers bailing out of their positions in a bid to cut their losses before things get out of hand.
Vertex Energy Short Interest Sits At 29%
A good way to create short interest in your company is to surprise the market with an unusual or unexpected announcement. Houston, Texas-based Vertex Energy Inc. (VRTX) did just that last May, when the environmental services company declared its intention to acquire Alabama refinery Mobile Chemical LP from Royal Dutch Shell.
Up until then, Vertex was known for its work in the used motor oil (UMO) sector, but, in the wake of the refinery purchase, the company said it would sell its interest in the UMO assets, and focus on converting the Alabama hydro-cracking facility into a renewable diesel fuel operation.
Despite an initial bump for Vertex Energy’s share price, the long-term reaction to the firm’s business plans have been lukewarm, and the company has been on a losing streak since the start of July 2021.
To add insult to injury, Vertex plummeted even further recently after the company proposed a convertible notes offering of $155 million.
Clearly in desperate need for funds to finalize the Alabama acquisition, short interest in the firm has grown to 29%. With the takeover now apparently in some difficulty, it will be interesting to see where Vertex goes from here.
All is not lost however, as the deal is reputed to promise Vertex a business worth $3 billion in annual revenue, which should generate $400 million in gross profit by the end of 2023.
Lemonade Short Interest 32%
Things have turned sour for AI-powered insurance platform Lemonade Inc. (LMND). The company’s been afflicted by the general sell-off in growth stock over the last year, but recent predictions of widening losses in 2022 haven’t helped stem the loss in value that’s seen the business lose 78% of its worth in the previous twelve months.
Indeed, investor confidence in the stock really seems to be waning: 13.6 million of the company’s shares outstanding – a full 32% of the available float – are now short, and the borrow rate for LMND stock is up at 4.61%.
But unlike, say, Beyond Meat, Lemonade’s business fundamentals aren’t too bad. Revenue estimates have been rising lately, and the company’s price-to-sales multiple has come down significantly from 41-times last year to just 15-times today.
Insignia Systems Short Interest 32%
So-called “meme stocks” are especially well-known for their ability to artificially foment short squeezes in the market, the most famous of which is probably the GameStop short squeeze that occurred in January 2021.
And while there have been others, it’s very possible that the next could be Insignia Systems, Inc. (ISIG), a Display Marketing company that looks like it’s setting up for another big short squeeze.
The business saw its share price jump from around $5 at the beginning of December 2021, to highs of $25 in mid-January 2022. Short interest in the firm is still high at 32%, but its stock has been falling the last few weeks, and now trades at just above $13.
As with many meme stocks, there doesn’t appear to be any fundamental reason why the company should have performed as well as it has done recently. In fact, the business made a net loss in the third quarter, and its revenues dropped 21% year-on-year.
However, the firm did put out a press release at the start of December alluding to a possible “review of strategic alternatives.” Some observers interpreted this as a nod to a potential takeover further down the line, sparking a flurry of buying interest in the stock.
With so much of its share float shorted at time, it’s reasonable to assume ISIG underwent a short squeeze, pumping its value to new heights. Whether this happens again remains to be seen, but with momentum waning in the stock, it’s not very likely.
Blink Charging Short Interest 39%
The market rotation out of growth stocks and into safer value plays of late has affected companies in the electric vehicle (EV) space more than most.
One of these, Blink Charging Co. (BLNK), is already down over 20% in 2022, having also fallen during the last twelve months by almost 60% as well.
Blink Charging performs a linchpin service in the EV world by operating and providing a suite of charging stations all across the United States, deploying its technology at destinations as diverse as hotels, airports, hospitals and universities.
The company had an amazing year in 2020, growing its share value 20-fold, from lows of under $2 to highs of over $40. But fortunes for the company have taken a turn for the worse recently, as short interest in the brand spiked to 39%.
Profitability for the firm is nowhere to be seen, although year-on-year revenue growth of 245% is one bright spot on the horizon.
With the firm’s valuation metrics high – its sale multiple is north of 50-times, for instance – it’s likely that the short sellers aren’t going anywhere soon. Its third quarter revenue grew by a massive 607%, but it probably needs to improve its bottom-line before a short squeeze is on the cards.
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