At a quick glance at its one-year chart, seemingly everything about dermatology specialist Cutera (NASDAQ:CUTR) screams danger. Typically, a publicly traded firm doesn’t lose over 88% of its market value over a 52-week period unless something catastrophic happens. Despite the awful print, however, Cutera is involved in a relevant industry. Combined with its short squeeze potential, CUTR stock could be intriguing for contrarian speculators.
According to its public profile, Cutera develops and markets so-called energy-based product platforms for medical practitioners. One of its main products is AviClear, designed for the treatment of various stages of inflammatory acne. It also markets Secret PRO, which is a device designed for skin resurfacing and skin revitalization.
Per Grand View Research, the global dermatology devices market reached a valuation of $15.29 billion last year. Further, experts believe that from 2024 to 2030, the industry could expand at a compound annual growth rate (CAGR) of 12.64%.
By 2030, the industry could be worth $34.34 billion. Considering that CUTR stock carried a market capitalization of only $41.55 million as of Wednesday’s close, the upside could be tremendous.
Drilling into the Short Squeeze Opportunity
Before diving into CUTR stock, it must be stated that merely chasing after low-valuation securities is not a great recipe for success. If it were that easy, everyone would simply buy the cheapest thing they could find. As it relates to Cutera, there’s a reason for the pain.
During the trailing 12 months, the dermatology specialist incurred a net loss of $157.56 million or $7.91 per share. In this period, revenue came in at $196.64 million. Data from Yahoo Finance reveals that the quarterly revenue growth rate (year over year) sits 28.9% below breakeven.
For fiscal 2024, analysts are still projecting a steep loss per share ($4.08) along with a modest sales tally of $161.81 million. That’s down 23.8% from last year’s print of $212.37 million. Amid these terrible stats, the short interest of CUTR stock flew up to 43.06% of the float. The short interest ratio stands at just under 26 days to cover.
Ordinarily, it’s a bad sign when traders short 43% of publicly available shares. However, if CUTR stock doesn’t decline in value and instead swings upward, it would take a long time for the bears to unwind their short position.
After all, the short ratio means that it would take the bears 26 market sessions – based on average trading volume – to cover their positions entirely. During this panicked time, the price of CUTR stock could potentially rise as the pessimists who cut out early incur the least damage.
Of course, covering a short position means buying to close. That’s where Cutera becomes very interesting.
Trade of the Day: Buy CUTR Stock in the Open Market
Because the timing of a short squeeze is difficult to predict and because Cutera options have practically no volume, Thursday’s trade of the day is straightforward: Buy CUTR stock in the open market.
Yes, the aforementioned one-year drop of over 88% is worrying. Nevertheless, since November 2023, CUTR stock has “relatively” stabilized. It also appears that there’s a reversion to the mean roughly around the $2 price. That’s a big positive since it’s a psychologically significant milestone.
With a rough baseline established, the idea here is to set up camp before a potential bull wave materializes. Given the extremely high short interest and short ratio, all it may take is one little push to start the panic.
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On the date of publication, Josh Enomoto 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.
