So we all know that short squeezes have been among the most popular and controversial topics in the past couple of years. So I wanted to compile a short list of potential short squeeze stocks, and why I think they’re worth trying.
Beyond Meat Inc. (BYND)
Beyond Meat, a leading innovator in the plant-based meat industry, continues to face a torrent of challenges that have significantly impacted its financial performance. The year 2023 has not offered any respite, following a succession of disappointing quarters that have eroded investor confidence. In the most recent second quarter, the company reported a staggering 30.5% drop in year-over-year revenue, marking the fourth consecutive quarter of double-digit sales declines. This troubling trend has resulted in a precipitous stock price decline of 91% over the past three years, a stark reminder of the volatile nature of the market for emerging consumer goods companies.
Once touted as a high-growth stock with significant upside due to its potential to disrupt a massive addressable market, Beyond Meat now finds itself struggling to maintain its early momentum. Short sellers have seized upon this vulnerability, intensifying their positions in anticipation of further downturns. With a short interest that accounts for more than 37% of the stock’s available float, it’s evident that market sentiment is increasingly bearish. Short sellers see Beyond Meat as an unprofitable venture grappling with negative growth trajectories, amid a landscape that is becoming increasingly competitive with traditional meat producers and new plant-based entrants alike.
Velo3D (VLD)
Velo3D is a 3D printing company, a company specializing in 3D printing technologies, made its public debut through a SPAC merger in September 2021 with an initial share price of approximately $8.80. Since that high-profile entrance, the stock has tumbled dramatically, now trading at a fraction of its original price, below $1.60 per share. Despite this downward trajectory, the company posted some positive indicators, such as a 28% increase in revenue growth during the second quarter and a record surge in new customer demand, suggesting that the underlying business model may have some merit.
However, these optimistic signals have been overshadowed by a series of red flags that have caught the attention of short sellers. Most notably, the company recently revised its full-year revenue guidance downward, a move that typically rattles investor confidence. Adding to this sentiment was the alarming $23 million net loss reported, a stark contrast to the net profit of $128 million reported in the same period the previous year. This financial deterioration suggests that the company may be grappling with operational challenges that aren’t immediately apparent in top-line growth figures.
Given these financial indicators, short sellers have taken a keen interest in the stock. Data from Ortex estimates that approximately 15% of Velo3D’s available float is currently held in short positions. This level of short interest signals a heightened level of skepticism about the company’s future prospects, but it also sets the stage for a potential short squeeze. Should Velo3D surprise the market with a sudden profit, it could trigger a wave of buying activity as short sellers scramble to cover their positions, potentially leading to a dramatic upward correction in the stock’s price.
Hyzon Motors (HYZN)
Hyzon Motors , a pioneering entity in the hydrogen mobility sector, specializes in the design, development, and production of both standalone and integrated hydrogen fuel cell systems, as well as hydrogen-fueled commercial vehicles. The company entered the public market through a SPAC merger in July 2021, with an initial share price of $9.70. However, the stock has suffered a dramatic decline, plummeting more than 85% since its public debut. This has undoubtedly been a cause for concern among investors who were initially captivated by the promise of a hydrogen-powered future.
In an attempt to reassure shareholders, Hyzon announced in June that it had taken measures to strengthen its governance structures and identified “material weaknesses in controls and procedures.” While this transparency is laudable, it simultaneously raises questions about the company’s operational readiness and managerial oversight. Further amplifying these concerns was Hyzon’s second-quarter financial report in August, which disclosed a net loss of $60.2 million, underscoring the company’s ongoing struggles to turn its innovative technology into a profitable enterprise.
Adding to the complexity of Hyzon’s situation is the rising level of short interest in the stock. According to recent data, about 14% of Hyzon’s available float is held in short positions, indicating a growing skepticism among investors about the company’s ability to navigate its financial and operational challenges. This heightened level of short interest also provides the ingredients for a potential short squeeze. Should Hyzon unexpectedly pivot to profitability or secure a significant partnership, it could lead to a swift reversal in stock price as short sellers rush to cover their positions, thereby adding another layer of volatility to this already risky investment.
SmileDirectClub (SDC)
SmileDirectClub , a company that aimed to revolutionize the dental industry with its direct-to-consumer orthodontic solutions, has become a favorite target for short sellers since its much-anticipated Initial Public Offering (IPO) in 2019. Initially launching with a share price of $23, the stock was greeted with considerable enthusiasm. However, the intervening years have proven to be a difficult period for the company, as it has experienced a catastrophic decline in its stock value. Today, nearly four years after its IPO, the stock trades at less than 50 cents, representing a staggering loss of more than 99% of its initial value. This decline has put the company in a precarious position, as it is now flirting with the risk of being delisted from the Nasdaq exchange due to its diminished market capitalization and share price.
What’s more, the financial struggles of SmileDirectClub aren’t limited to its plummeting stock price. The company has yet to report a profitable quarter since becoming publicly traded, raising questions about the sustainability of its business model. Despite the significant media attention and consumer interest it garnered in its early days, SmileDirectClub has failed to translate this into a successful financial performance, serving as a cautionary tale for investors lured by high-profile IPOs that promise to disrupt established industries.
Adding another layer of complexity is the high level of short interest surrounding the stock. Ortex data suggests that more than 22% of SmileDirectClub’s available float is currently held in short positions. While this high short interest speaks to the market’s skepticism about the company’s future, it also introduces the possibility of a short squeeze, should there be any sudden positive developments. In such a scenario, short sellers would be forced to rapidly buy shares to cover their positions, potentially causing a sharp uptick in the stock price. However, given the company’s ongoing struggles and lack of profitability, such a turnaround seems increasingly unlikely, making this a high-risk play for speculative investors.
AirSculpt Technologies (AIRS)
AirSculpt Technologies, a cutting-edge healthcare company specializing in body contouring treatments, took the public markets by storm when it went public in October 2021 with an IPO price of $11 per share. The company utilizes minimally invasive procedures to remove fat, tighten skin, and reshape specific areas of the body, tapping into a market increasingly concerned with aesthetic wellness. However, despite the initial buzz, the stock has languished below its IPO price, causing concern among investors who were initially bullish on its prospects.
Nevertheless, there are some bright spots in the company’s financial landscape. For instance, AirSculpt reported a second-quarter revenue of $55.7 million, marking a 12.2% increase compared to the same period last year. Moreover, the company reaffirmed its full-year revenue guidance, estimating a range between $187 million and $192 million, suggesting a level of internal confidence in the business strategy. Additionally, the stock has shown signs of life recently, surging 111% year-to-date.
Despite these encouraging signs, the market remains largely skeptical, as evidenced by the high level of short interest in the stock. Nearly 23% of AirSculpt Technologies’ available float is held in short positions, indicating that many investors are betting against a sustained rally. This skepticism among short sellers stands in sharp contrast to the company’s upward trajectory and positive financial indicators. The sizable short interest does create a potential setup for a short squeeze, wherein any positive news could trigger a wave of buying as short sellers seek to cover their positions. However, given the current level of skepticism and the stock’s inability to climb above its IPO price, investors should approach AirSculpt Technologies with caution, considering both its potential for growth and the inherent risks involved.
What To Do?
In summary, while the allure of a short squeeze can be tempting for retail investors, it’s crucial to approach these stocks with caution. From struggling startups like Velo3D and Hyzon Motors, to companies facing serious financial downturns like Beyond Meat and SmileDirectClub, each of these companies presents a set of unique risks and opportunities. The high short interest in these stocks suggests that they could be primed for a short squeeze, but it’s essential to remember that the fundamentals are a critical aspect to consider. Always remember, investing in stocks with high short interest is not for the faint of heart, but for those willing to give it a shot, the rewards could be substantial.
