An investment in Skillz (NYSE:SKLZ) stock has too much upside to ignore at present.
Investors in the digital gaming stock have witnessed impressive volatility throughout 2021. Skillz shares began the year below $20 and would hit $44 by early February.
Accusations by Wolfpack Research that Skillz was little more than a pump-and-dump scheme were leveled on March 8.
Skillz had already declined by more than 44% from highs by that time. The firm’s research and accusations were not the catalyst for the downtrend in Skillz. Ironically, SKLZ stock would immediately rebound following those accusations. In the days following the report shares would rise 29%.
Skillz has witnessed several more spikes since, and now there are multiple catalysts that could serve to propel it quickly upward. After all, SLKZ stock is down more than 30% so far this year, and it essentially hasn’t made any significant moves for the last 30 days.
What is really worth considering as SKLZ stock bumps around in the $12 range today is the current short interest.
Short Interest and SKLZ Stock
It is no secret that retail investing has undergone a renaissance in 2021. The word renaissance conjures up an enlightened period, so maybe that’s not the best word choice. Jabs aside, platforms including Reddit have given retail investors a voice in the investing world they simply didn’t have prior.
We’ve already seen their collective might deal losses to hedge funds in the billions through their positions in GameStop (NYSE:GME) as one example.
Retail investors love to direct their collective might to punish heavy shorts in stocks they believe in. They hope to affect a short squeeze in this way, forcing those who bet against the stock to pay as their bets are proven wrong when the stock rises.
Skillz currently has a short interest level of 23.46%. That puts Skillz on this screener, though nearer the bottom.
There is no indication that a short squeeze is imminent, but the potential remains. That attention will keep buying pressure on SKLZ stock higher than it might otherwise be. If a squeeze is enacted, prices will rocket upward.
Outside of that catalyst, what investors also have is a company that is showing improvement, albeit with mixed results.
Arguably Improving
The most recent financial results of Skillz point to a tentative investment case. On the one hand, there were some impressive growth numbers underpinning the company.
Revenue hit $89.5 million, up 52% on a year-over-year basis. Profits increased by a similar percentage, reaching $85.1 million. Thus, Skillz carries a high 95% margin.
All of those metrics bode well for the company and serve to paint a strong picture of the company. However, things are not perfect. Its net loss nearly quadrupled during the same time frame, from $20.2 million to $79.8 million in Q2 ‘21.
While those results are mixed, the company is seeking smoother growth through acquisitions and partnerships.
Skillz acquired Aarki which includes 465 million users and other resources which should allow Skillz to attract new users more efficiently. Skillz has given guidance that the Aarki acquisition is expected to improve its revenues by $13 million. That raises its forecast to $389 million in company-wide revenues in 2021.
The mobile gaming platform also formed two important partnerships in Q2. One of which is with a German private company, Exit Games. Exit Games has the technology used in hosting esports tournaments and should boost the offering of Skillz.
The other notable partnership is between Skillz and the NFL. Skillz helped the NFL review proposed mobile games, whittling the semi-finalists down to 14. This likely means very little from a current revenue perspective. Yet, it opens the door to broader collaboration between the two entities.
The Bottom Line on SKLZ
In summary, there is a cautious case building for investing in SKLZ stock.
Chasing short squeezes is a tough proposition. Further, net loss concerns are another tailwind, but all that said, Skillz could move upward making it worthwhile for risk-tolerant investors.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
