At the end of last month, shares of Clover Heath Investments (NASDAQ:CLOV) rallied from a “multiple bottom” signal. This is one of many Reddit stocks that demonstrated a classic short squeeze in the last few months. Reddit is a forum whose subgroup (or sub-reddit), WallStreetBets, caters to the speculative trader. The subreddit rose to the mainstream after the infamous Gamestop (NYSE:GME) short-squeeze earlier this year. Much has changed since GME stock peaked at $483, up from a $3.77 52-week low.
The subgroup temporarily banned members from starting a thread about GME stock. And although it reversed the ban to allow posting about it again, GameStop will still have to trade on its merits.
This creates an opportunity.
Clover stock has gotten more of Reddit’s attention. How did Clover Health drink the short-squeeze juice recently? Search for CLOV in the forum. There, you will find a modest number of posts with very low upvotes (less than 500 in most cases). This $1 million investment in CLOV stock over two weeks ago is an exception. It has over 1,500 upvotes. There are six other Reddit stocks along with CLOV that could see short-squeeze gains. They are:
- Alibaba Group (NYSE:BABA)
- Clover Health Investments
- DraftKings (NASDAQ:DKNG)
- Microvision (NASDAQ:MVIS)
- Palantir Technologies (NYSE:PLTR)
- Rocket Companies (NYSE:RKT)
- Tesla (NASDAQ:TSLA)
In the above chart, Alibaba and Tesla are notable for having the highest overall score overall. The other stocks have questionable scores, which may explain why short-sellers have a high short-float position in some cases.
Reddit Stocks On Short-Squeeze Watch: Alibaba Group (BABA)
Alibaba does not have a high short float, which is around 2%. After the stock’s sharp drop from a high of $319.32 reached last Oct. 2020, the China-based internet retail firm is due for a rally. Reddit users discussed on WSB a child’s uncanny resemblance to Alibaba’s co-founder and former Executive chair, Jack Ma.
Alibaba stock is underperforming because of Ma’s ties to the company. Since late last year, Beijing unleashed a series of investigations and new regulations. This led to a long delay in the public listing of Ant Financial. On April 10, China fined Alibaba $2.75 billion for anti-monopoly violations. At first, markets reacted favorably to the ruling. It removes a political unknown that weighed on the share price.
Alibaba will likely continue growing its revenue by at least 35% annually. Investors may halve that growth rate by 2025 in a 5-year discounted cash flow EBITDA exit model.
This uses an EBITDA Exit multiple to calculate terminal value after five years.
|Discount Rate||10.5% – 9.5%||10.00%|
|Terminal EBITDA Multiple||13.2x – 15.2x||14.2x|
|Fair Value||$281.65 – $320.28||$300.65|
Readers may adjust the assumptions by opening the finbox model link below the table posted above. BABA stock is worth $301 based on a conservative outlook. The Chinese government’s regulations will not slow this e-commerce giant’s growth by much.
Clover Health Investments (CLOV)
In April, Clover stock soared, possibly on the incorrectly posted 35% short float causing a squeeze. Before that, the stock tested the sub-$8.00 level a few times before the rally. FactSet (NYSE:FDS) posted a correction to the short float at the time, citing a 27% short float. CLOV stock fell afterward.
On April 15, Clover Health added Demetrios Kouzoukas, a former director of the Center for Medicare and Principal Deputy Administrator of CMS. This does not change the fundamentals of the company. His legal and regulatory experience may help Clover Health navigate the new medicare advantage markets.
In the last quarter, the firm forecast one-time non-recurring costs of $25 million for the full year 2021. The write-down is related to one-time legal costs and costs from startup operations. It expects revenue in the range of $820-$850 million. It will post a net loss of ($210)-$(170) million.
Shareholders have few reasons to find optimism from the outlook. CLOV shares will rise again on another temporary short-squeeze, at best.
Reddit Stocks On Short-Squeeze Watch: DraftKings (DKNG)
For the week ended May 7, short float on DraftKings stock stood at 7.6%. The stock lost 14.5% that week as selling accelerated after the earnings report. The company posted revenue of $312 million, up by 252.4% year-over-year. Monthly Unique Payers in the B2C segment rose by 114%.
DraftKings raised its revenue guidance to $1.05 billion-$1.15 billion. This is up from $900 million to $1 billion. Investors bailed on the stock because the firm lost 87 cents a share. Chances are high that this post-SPAC stock has a broken business model. DraftKings has over 400 million shares outstanding.
DKNG stock could get short-squeezed soon. The stock-based compensation cost the company $152 million out of the $186 million in expenses. It paid this out based on the anticipated revenue performance in 2021. This suggests that DraftKings will not have more unexpected expenses of this size this year.
The company has $2.8 billion in cash. This gives DraftKings enough capital to execute on its multi-year plan. It will acquire customers as new states legalize online sports gambling.
After hundreds of daily posts, MicroVision peaked at $28 at the end of last month, ahead of its earnings report posted on April 29. In true Reddit WSB fashion, the $500,000 revenue in Q1 rattled shareholders.
MVIS stock has a short interest of around 23%. Just as autonomous driving stocks lifted electric vehicle stocks earlier this year, MicroVision enjoyed a lift. On its conference call, Chief Executive Officer Sumit Sharma said MicroVision only has 100 initial quantities of its LiDAR. The executive said, “it’s been validated by us and external parties, and it would be something we would offer and provide.”
The CEO failed to say when customers will finish evaluating the LiDAR product samples. The CEO expressed optimism for the technology. He said, “I believe, this is a groundbreaking feature that no other LiDAR technology on the market, ranging from time-of-flight or frequency-modulated-continuous-wave sensors, are currently expected to meet.”
The speculation is enough to move MVIS shares again on another short-squeeze. The odds, however, of another squeeze is low. Reddit posting volumes on MVIS slumped after the earnings report.
Reddit Stocks On Short-Squeeze Watch: Palantir Technologies (PLTR)
Since its initial public offering last year, Redditors on WSB mention Palantir often. The stock traded in the $20-$30 range for more than six months. That excludes the short-lived rally to $40 in early January.
Last month, Palantir hosted a demo event. In the first event, it featured the Palantir Foundry product for life sciences and industrials. Key customers include Merck (NYSE:MRK), the National Institutes of Health, the U.K. National Health Service, and Doosan. The company showed the participants how Archetypes works. For example, in life sciences, the product curates and harmonizes the data. Customers may accelerate discovery through the best scientific research collaborations.
In Industrials, Palantir demonstrated high-scale Internet-of-Things analytics and supply chain optimization.
The modest short-float in PLTR stock could add to a sustained rally in Palantir stock next. More importantly, this is a Reddit user favorite. Any meaningful move in the stock will re-ignite posting volume in the forum.
On Wall Street, the average price target is $21.75.
Rocket Companies (RKT)
Rocket stock suffered a massive slump following its second-quarter guidance. On May 5, the company posted strong Q1 revenue growth of 91.5%, to $4.04 billion. It posted a GAAP EPS of $1.07.
In the second quarter, Rocket forecast a mortgage pricing war. This will put pressure on revenue and margins. Still, Jay Farner, Rocket Companies’ Vice Chairman, and CEO praised the company’s technology platform and sales team. He believes it will keep delivering scalability and a client experience better than the competition.
Farner also highlighted that Rocket Auto increased the number of vehicles it sold by 65%. The visitor monthly-active-users (MAU) triples by three-fold on Rocket Homes. And Amrock “achieved its highest level of closings in company history with an increase of 110% from the first quarter of 2020.”
RKT stock surged from below $20 to $41.10 in early March. A special dividend led to a massive short squeeze. This could happen again if Redditors buy on RKT stock weakness and pressure shorts a second time.
Reddit Stocks On Short-Squeeze Watch: Tesla (TSLA)
Short-selling Tesla stock is a rarity after the stock more than tripled in the last year. But after CEO Elon Musk appeared on Saturday Night Live, Reddit fans may buy some shares at current levels. Short-sellers, noticing the renewed buying, may close their bearish bet on the electric vehicle maker.
Electrek reported Tesla raised the prices of the Model 3 and Model Y again. Consumers must pay at least $39,500 for the cheapest model. The price hike comes due to the current chip shortage cutting into Tesla’s output. Other electric vehicle (EV) firms and internal combustion engine suppliers cut weekly output, too. Tesla is hiking prices ahead of upcoming competitors entering the market at a lower price point. For example, the Fisker (NYSE:FSR) electric SUV will have a solar roof and will start at $37,500. That price excludes government tax credits.
Tesla is probably betting that customers will buy an EV based on its strong branding. Fisker and Lucid Motors do not have a product on the market. Customers may choose a Tesla model over those unproven vehicles. When chip shortage ends, Tesla sales could resume trending higher, lifting the stock and squeezing short-sellers again.
On the date of publication, Chris Lau did not have (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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.