Is ATER Stock Poised for Another Short Squeeze Rally After Q1 Results?

ATER stock - Is ATER Stock Poised for Another Short Squeeze Rally After Q1 Results?

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Aterian (NASDAQ:ATER) stock traded at 52-week lows of $2.1 on March 14. Even as broader markets face headwinds, ATER stock has skyrocketed by 148%.

It was a typical short squeeze rally with no major positive catalysts. However, even after the big surge, the short interest in ATER stock remains abnormally high at around 39%.

So, is the stock positioned for another short squeeze rally? In particular, with the company scheduled to report first-quarter earnings for 2022 early next week.

I would assign a higher probability to ATER stock trending lower than surging higher.

Back in November 2021, Aterian guided for a long-term revenue growth target of 100%. The company also guided for an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin in the range of 13% to 15%. However, for the fourth quarter of 2021, the company reported revenue growth of 52.6% to $63.3 million. The company also reported an adjusted EBITDA loss of $3 million. With supply chain issues, it’s unlikely that growth will accelerate in Q1 2022.

Last week, Amazon (NASDAQ:AMZN) stock plunged as the company reported weaker than expected numbers. With the pandemic boom fading, growth is likely to be a concern for the sector.

Aterian plans to drive growth organically as well as through its merger and acquisition strategy. The company closed 2021 with a cash balance of $30.3 million. With cash burn, the company would need external financing for acquisitions.

I would not be surprised if the company utilizes the recent run-up in the stock to dilute equity. That’s another reason to stay away from ATER stock in the near-term.

Among the positive factors, e-commerce sales as a percentage of total retail sales are expected at 20.4% for 2022. This number is expected to increase to 21.8% by 2024. Even with near-term headwinds, the trend is likely to remain positive for the industry. Aterian also estimates that there are more than three million sellers on Amazon that lack technology and scalability. The third-party seller market on Amazon provides the company with some attractive acquisition opportunities in the next few years.

Last month, Aterian also appointed Anton von Rueden as the chief operating officer. Rueden will oversee the global supply chain operations. With several years of industry experience, Rueden is likely to bring a positive change.

Investors Should Steer Clear of ATER Stock

Even with some positives, ATER stock looks unattractive in the near-term. The recent rally is unlikely to sustain with multiple concerns dominating sentiments.

The company’s contributing margin and EBITDA needs to show sustained improvement to restore confidence among market participants. Top-line growth has also been significantly lower as compared to the guidance.

Also, Q1 2022 results are likely to disappoint considering the industry trend. It’s possible that investors get an attractive entry point if there is a sharp sell-off after results. I would not be surprised if the stock trades around $3 levels.

On the date of publication, Faisal Humayun did not hold (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 Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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