A short squeeze is a financial phenomenon where rapidly increasing prices force short sellers to buy back stocks, pushing prices even higher. This situation often arises from a large number of investors betting against a stock, anticipating its decline.
However, when the price unexpectedly jumps, short sellers rush to cover their positions to minimize losses, inadvertently driving the price up further. This cycle can intensify as more short sellers buy to close their positions, adding to the upward momentum in the stock’s price.
Traders can spot potential short squeezes by monitoring indicators like short interest, which represents the percentage of a stock’s shares borrowed by short sellers. A high short interest suggests a stock may be ripe for a squeeze if buying pressure mounts.
Another key metric to watch closely is “days to cover,” calculating how long it would take for short sellers to cover their positions based on average trading volume. A high “days to cover” ratio indicates a stock is more susceptible to a short squeeze. Bottom line, understanding these indicators allows traders to anticipate significant price movements.
Let’s look at several short-squeeze stocks that could erupt higher in the coming weeks and months.
Prime Medicine (PRME)
Prime Medicine Inc. (NASDAQ:PRME) is a biotechnology company pioneering the development of a new class of genetic medicine based on its proprietary Prime Editing technology. The stock’s short interest ratio stands at nearly 34%.
This biotech company seeks to enable precise and permanent gene editing capabilities. It can potentially address genetic diseases at their source by directly repairing mutations. PRME’s early stage product pipeline focuses on various genetic disorders with the goal of achieving transformative therapeutic outcomes.
Recently, Prime Medicine announced the pricing of a significantly upsized public offering, involving approximately 19.2 million shares at a price of $6.25 each. Furthermore, to accommodate certain investors, pre-funded warrants for nearly 3.2 million shares are being offered at the same price per pre-funded warrant. As expected, the company’s stock fell.
Also, the company granted underwriters a 30-day option to purchase up to an additional 3.36 million shares, potentially increasing the offering’s size. Prime Medicine anticipates gross proceeds of approximately $140 million from this offering, before accounting for underwriting discounts, commissions, and other offering expenses.
This financial move aims to bolster the company’s capital, supporting its innovative endeavors in gene editing technology and the development of genetic medicines. In case Prime Medicine finds success as it moves to bolster its liquidity, shares – which are down 40% over the last 52 weeks – could erupt higher.
iRobot (IRBT)
iRobot Corporation (NASDAQ:IRBT) specializes in designing and manufacturing consumer robots. The company is known for its Roomba vacuum cleaning robots, Braava floor mopping robots, and other home automation products. The company’s goal is to automate routine cleaning tasks, improving efficiency and convenience for users.
The company’s stock collapsed recently after Amazon (NASDAQ:AMZN) was forced to abandon the deal to acquire iRobot due to regulatory hurdles in the European Union. Concurrently, iRobot announced a significant workforce reduction. They laid off approximately 350 employees, or 31% of its staff, as part of a broader restructuring effort.
The restructuring includes the departure of iRobot’s co-founder and CEO, Colin Angle. In response to the current challenges, iRobot is scaling back its product development. It will focus on its core floor-cleaning technologies while exiting less profitable markets.
This is a key factor why short-sellers were aggressively shorting IRBT stock, which is down as much as 72% year to date (YTD). The aborted deal with Amazon triggers a $94 million termination fee, aiding iRobot in addressing a substantial part of its $200 million loan.
Further, iRobot remains an innovative company that will likely recover from this blow. In essence, the abandoned Amazon deal makes IRBT more streamlined and efficient, creating it as a bigger M&A target. Short interest ratio stands at more than 33%, making iRobot one of the potential short-squeeze stocks candidates.
Symbotic (SYM)
Symbotic Inc. (NASDAQ:SYM) develops and markets agricultural technologies designed to enhance crop yield and resilience. At the same time, they minimize environmental impact. Its product portfolio includes biofertilizers, biostimulants, and integrated pest management solutions. The company aims to support sustainable farming practices.
In a move to boost its finances, Symbotic announced an offering of 5 million Class A shares directly by the company. Additionally offered were 5 million Class A shares by shareholder Richard B. Cohen, with Goldman Sachs managing the pricing.
The proceeds from Symbotic’s share offering are designated for general corporate purposes. This offering is positioned at a 0.95% discount to the stock’s last closing price, causing shares to modestly drop in the aftermath of the announcement. Following the offering, Symbotic will have 89.1 million shares outstanding, with a public float of 15.7 million shares as of February 5th.
Shares fell sharply in February after the company’s management implied in the most recent earnings report a slower FY24 profit growth. Still, the management reiterated its focus on product quality and high customer satisfaction. Bottom line, the company reiterated its long-term margin targets.
Therefore, Symbotic remains well-positioned in the long-term despite the recent setback. The short interest ratio stands at about 32.6%, positioning SYM to surge in case the near-term visibility improves.
On the date of publication, Shane Neagle 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 InvestorPlace.com Publishing Guidelines.
