Retail investors may be beating Wall Street at its own game by diving into short-squeeze stocks. But, after the epic runs of AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME), is there further opportunity in stocks with high short interest?
Yes and no. On one hand, the ship may have sailed with AMC and GME. The big gains with these favorites of the Reddit forum r/WallStreetBets have likely been realized. On the other hand, these aren’t the only heavily shorted stocks out there.
Hedge fund Melvin Capital may be down more than 53% in January. Prominent short-seller Citron Research may be throwing in the towel on “short reports.” But, by-and-large, the “smart money” continues to have big bearish bets on scores of major names.
As a result, plenty more potential short-squeeze plays out there. However, there are a few caveats. First, many of these names have already ripped higher, as speculators anticipate these will be the next targets of r/WallStreetBets. Second, with Wall Street doing what it can to mitigate the current situation, it could be more difficult for the next GameStop to happen.
Third, investors are buying these more for their squeeze potential than their underlying fundamentals. If this investing trend starts to lose steam, those buying at today could see big losses if shares pull back to prior price levels.
However, for these five short-squeeze stocks, the potential gains may exceed the risk of a post-trend pullback:
- BigCommerce Holdings (NASDAQ:BIGC)
- FuboTV (NYSE:FUBO)
- PetMed Express (NASDAQ:PETS)
- Tilray (NASDAQ:TLRY)
- ViacomCBS (NASDAQ:VIAC)
Short-Squeeze Stocks: BigCommerce Holdings (BIGC)
With 44.6% of float sold short, investors are well aware of the squeeze opportunity here with BIGC stock. But even as it pulls back from its short-squeeze rip ($62 per share, to $90 per share, and now at $73 per share), there may be room for more gains with this lesser-known e-commerce play.
Why? Sure, shares already shot to the moon (and crashed back to earth) last year, after its IPO at the height of enthusiasm for e-commerce stocks. But, as a Motley Fool commentator recently noted, the decline in BigCommerce last fall had more to do with profit-taking than any changes in its underlying fundamentals.
You may think this company is an also ran relative to the largest e-commerce SaaS play out there, Shopify (NYSE:SHOP). But, as Hedgeye (who recently added the stock to its “Best Ideas Long List“) sees it, this company’s platform may have the competitive edge when it comes to capturing the small-and-medium sized business (SMB) market.
That’s not to say BIGC stock will produce Shopify-esque returns. But, its underlying strengths, coupled with excessive short-interest, may make this a stock with pop potential, as heavily shorted stocks continue to trend higher.
A combination cord-cutting and sports betting play, it’s no surprise retail investors are very bullish on FuboTV shares, making this one of the best short-squeeze stocks.
But, given high competition in the emerging sportsbook industry, coupled with questions of whether sports streaming is a cash cow, or a loss leader, it’s also easy to understand why this has become a heavily shorted stock as well.
What do I mean? Nearly 72% of its float has been sold short. Yet, there’s one well-known investor, one typically associated with short-selling, that’s become one of the stock’s biggest cheerleaders. I’m talking about Greenlight Capital’s David Einhorn.
Einhorn believes the stock’s bears are missing the forest for the trees. That is to say, too focused on its rich valuation, and not enough on this platform’s potential. Once its sports betting capabilities are up and running, you will be able to not only watch sporting events on Fubo, but bet on them as well. This could make it a major sports viewing platform in the coming years.
FUBO stock, much like BIGC stock, is a name that has already pulled back from all-time highs set last year. If further big news comes out of this company, or, if the retail short-squeezing community pounces further on this play, shares (trading for around $48 per share) could soar back to their high water ($62).
And perhaps, even higher.
PetMed Express (PETS)
As InvestorPlace Markets analyst Thomas Yeung discussed Jan. 26, the bearishness over PETS stock may be due to erroneous beliefs about its business model. With the company conducting business under the 1-800-PetMeds moniker, many may believe this is a dinosaur company, failing to keep up with pet e-commerce powerhouses like Chewy (NYSE:CHWY).
Yet far from struggling, this online-based pet pharmacy is doing just fine. The company’s projected sales growth (9.7%) may be not anything to get too excited about. But, with earnings continue to rise, from $1.59 per share for the fiscal year ending Mar 2021, to $1.75 per share in the next fiscal year, PetMed Express’ prospects are much stronger than its short interest levels (around 32.5%) suggest.
Admittedly, the “big squeeze” in PETS stock may have already come and gone. During the mad rush, the stock surged from around $30 per share, to as much as $51.42 per share. But now? It’s fallen back to around $33.
Yet, with its solid fundamentals, and reasonable valuation (forward price-earnings ratio of 24x), there may be more runway. Especially if the stock’s bears start unwinding their “big short” on this short-squeeze stock.
The past few months have been great for pot stocks like Tilray. With the “blue wave” U.S. election results in November and January, the odds of federal marijuana legalization have greatly improved.
And now, the recent dive into short-squeeze stocks is just icing on the cake for this cannabis play. As a result of the squeeze, TLRY stock has fully recovered from its novel coronavirus losses. But, even after its blockbuster run as of late, shares could continue to climb.
Why? Full-on U.S. legalization of marijuana may happen even sooner than previously anticipated. Analysts at Stifel see the recent remarks by Senate Majority Leader Chuck Schumer as something that “could potentially foreshadow the most significant catalyst” in this industry’s history.
However, bear in mind that the recent run-up may more than reflect this possibility. This could limit how far TLRY stock will climb if (or when) we see big changes to America’s pot laws. But the short side here remains very crowded. An unwinding of short positions could be enough to push shares up furthers, perhaps all the way to the $25-$30 per share price level.
The mad rush into this heavily shorted stock in late January was icing on the cake for VIAC stock. Shares fell to prices as low as $11 per share at the height of last March’s pandemic-driven stock market crash.
At the time, this made sense. The initial outbreak decimated ad sales for its flagship TV division, and the ongoing closure of cinema hurt sales at its Paramount Pictures unit.
But, as investors better appreciated the prospects of its streaming business, shares rebounded by nearly four-fold. The accelerated rip in Viacom shares may be pulling back. Buying this recent dip could be a profitable move.
How so? Besides the continued growth of its ad-supported PlutoTV platform, and its subscription-based CBS All Access (soon to be renamed Paramount+) streaming service, this company is no longer as dependent on cable television (which is declining in the age of streaming) as it was in years past.
Bears (who have shorted 22.4% of its float) may beg to differ. But, all it’ll take is another round of positive news to push this stock even higher, leaving shorts scrambling to cover positions.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.