High short ratio stocks are a type of security that jumps in value due to increased volatility. These can include stock options, futures contracts, or anything else where the price changes based on whether investors believe there will be downward movement within six months’ time frames from now. But for a while now, there has been a lot of interest in short squeeze stocks because of the Reddit-induced frenzy we have seen this year.
The whole frenzy started with GameStop (NYSE:GME), but the investment trend has led to more rallies. Essentially, this is traditional investing flipped on its head. Usually, a high short ratio means you should stay away because the smart money is betting against an investment. Hence, you do not want to find yourself stuck in the crossfire. But this year, investors are actively looking for and pouring capital into highly shorted stocks because r/WallStreetBets will target such investments for a short squeeze.
However, it would be best not to think that every stock with a high short ratio is bad. Several companies with strong operating models are suffering because of the delta variant, inflation risks and general uncertainty. Hence, we have compiled a list of seven heavily short stocks and have excellent business prospects. Not every one of them is a Tesla (NASDAQ:TSLA), but several stable performers are doing a great job:
- Big 5 Sporting Goods (NASDAQ:BGFV)
- ZoomInfo Technologies (NASDAQ:ZI)
- Lemonade (NYSE:LMND)
- National Beverage Corp. (NASDAQ:FIZZ)
- iRobot (NASDAQ:IRBT)
- iStar (NYSE:STAR)
- Blink Charging (NASDAQ:BLNK)
Short Squeeze Stocks: Big 5 Sporting Goods (BGFV)
Short Interest % Float: 38.92%
Our first entry on this list of short squeeze stocks is Big 5 Sporting Goods, a brand firmly associated with baby boomers. It is a retailer selling items for indoor and outdoor sports. Whether it be golf, fishing, camping or tennis, you can find it at one of the company’s outlets. However, the major issue for BGFV is competition. Dick’s Sporting Goods (NYSE:DKS), for example, operates a similar business to BGFV. But because of a superior e-commerce model, Dick’s has been able to do very well in recent quarters while Big 5 has lagged behind peers.
Big 5 Sporting Goods does have one advantage. It sells firearms, something that Dick’s Sporting Goods has been moving away from. Last year, we saw record background checks and gun sales in the runup to the election. Although things have tapered off, gun enthusiasts are still purchasing a lot of firearms. Big 5 Sporting Goods is one of the few notable companies to still stock rifles, shotguns and handguns.
Plus, retail stocks are always a favorite of r/WallStreetBets. Remember, one of the reasons investors from the subreddit got behind GME stock was that they felt its bankruptcy could lead to massive job losses. The same sentiment could power this stock to new heights as well. In that case, it won’t matter how much revenue BGFV is generating and its outlook.
ZoomInfo Technologies (ZI)
Short Interest % Float: 5.74%
Cloud-based market-intelligence platform ZoomInfo Technologies is a stock that should excite meme traders. They have shown a penchant for tech-heavy offerings, and ZoomInfo Technologies, not to be confused with videotelephony and online chat services Zoom Video Communications (NASDAQ:ZM), is no different. It provides critical insights and data on business professionals and companies through its proprietary database, then sells to clients.
It’s an asset-light business model with all the right buzzwords which will get the attention of Redditors. It debuted last year in one of the biggest tech IPOs of all time. ZoomInfo priced shares at $21, and ZI stock closed its first trading day up 62% at $34. The stock price has ebbed and flowed in the last year.
However, shares have recovered nicely in the last few months and are now trading at over 90 times forward price-to-earnings. These are some steep price multiples, and undoubtedly value investors will be perturbed by these numbers. But a short squeeze is not out of the question, considering this is a tech play.
Short Squeeze Stocks: Lemonade (LMND)
Short Interest % Float: 29.72%
Lemonade is using big data analytics and artificial intelligence to disrupt the insurance sector. The initial insurance application process, underwriting process and fraud detection procedures are tasks performed by Lemonade in a very efficient and effective manner, giving it a huge advantage over traditional insurance companies.
Take the example of a typical homeowner’s form. There are 40 to 50 data points on that form on average. Lemonade, by contrast, manages to get one hundred times more data than the typical form. With more data at its disposal, the company can better serve its clients, ensuring a more precise loss ratio and higher margins.
Due to all these reasons, Lemonade had an excellent debut last year. Investors piled into the stock due to its reputation as the next big thing in tech. Unfortunately, that has led to some legitimate concerns regarding overvaluation. Although the stock has very attractive prospects, a market cap of nearly $4 billion seems excessive. Against this backdrop, the short ratio makes sense. But the general trajectory for this one is up, with the occasional pullback. That makes betting against this one a hazardous endeavor.
National Beverage Corp. (FIZZ)
Short Interest % Float: 23.29%
National Beverage Corp. is one of the largest drinks producers in North America, with net sales of $1.1 billion for its fiscal year ended May 1, representing a year-on-year gain of 7.2%. Sales and earnings per share growth have been steady for this company. Yes, if you are accustomed to Tesla-like growth, the numbers may be disappointing. However, one must admire the company’s robust fundamentals and its continued success in a highly saturated market.
For the fiscal first quarter ended July 31, 2021, net sales increased to $311.7 million, which compares favorably with the year-ago figure of $293.4 million. EPS came in at 58 cents versus 55 cents last year. The last seven quarters were earnings beats for the company. Considering we are seeing consumer discretionary incomes gain once again, it might be the best time to purchase this one.
Short Squeeze Stocks: iRobot (IRBT)
Short Interest % Float: 44.48%
Robotics is becoming more and more popular in the world. With so many uses, it’s no wonder why robotics is a hot topic for investors. However, one company that does not come up very often is iRobot, a Bedford, Massachusetts-based company that designs and builds consumer robots. The company was founded in 1990 by MIT professor Dr. Rodney Brooks and engineer Helen Greiner. They saw a need for robots to help humans do their jobs better, more safely and more efficiently, and they’re still doing that today. From military applications to assisting with household chores, the company covers a wide variety of everyday tasks that need to be done. However, the company is mostly known for its robot vacuums and mops.
Its most well-known product is the Roomba, one of the most popular and best-selling robot vacuum cleaners on the market. It uses a variety of sensors to map out your floor plans and clean every inch efficiently. In 2020, iRobot generated $1.4 billion in revenue, in large part due to the success of the Roomba product line. In the second quarter ended July 3, revenue was $365.6 million, an improvement of 31% from the year-ago period.
Revenue for the first half of the fiscal year stands at $668.9 million versus $472.4 million in the prior-year period. The one area of concern highlighted by the company in its earnings report is the ongoing semiconductor shortage. “Overall, retailer demand trends and consumer interest in our products remain favorable,” Colin Angle, chairman, and chief executive officer of iRobot, said, “However, the semiconductor chip shortage, which continues to disrupt a wide range of industries, is constraining our ability to fulfill anticipated second-half orders.”
Short Interest % Float: 44.57%
iStar is a real estate investment trust (REIT) specializing in ground leases. A ground lease is a long-term agreement for the use of land. Ground leases are often used in commercial real estate as an alternative to buying or building on land that does not belong to you. A ground lease differs from a typical rental agreement because it transfers ownership of the land to the tenant and can last up to 99 years. The entity leasing the property will benefit from using it without outright purchase, and the landlord gets a developed property after the lease term is over. Hence, iStar is essentially a leasing business, and it principally makes money from lease payments.
Due to being structured as a REIT, iStar has always been very popular with income investors. By law, REITs must give at least 90% of their taxable income to shareholders to maintain their tax-exempt status. But the healthy distribution is not the only reason you should invest in this one. STAR has outperformed its sector significantly, with 128% growth in the last five years. That is exactly the kind of price momentum that makes this a can’t miss stock in many eyes.
Short Squeeze Stocks: Blink Charging (BLNK)
Short Interest % Float: 37.29%
Blink Charging is a company that offers electric vehicle charging stations to businesses. The company offers several business models depending on the needs and capabilities of the partner companies.
As the world moves towards an all-electric future, companies like Blink Charging will become a permanent fixture in investment portfolios. That will continue to drive prices up. The notion makes sense. The company’s annual revenue grew 126% to $6.2 million in 2020. These are excellent numbers, but they are not enough to justify a market cap of $1.17 billion. So despite the outstanding revenue growth, the stock is still trading at astronomical price multiples.
Nevertheless, the EV space has proven to be a favorite for Redditors. That will not change anytime soon. If you combine it with a high short ratio, there are high chances that a Reddit-induced surge could be around the corner.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.