The short-squeeze rally in meme stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) is poised to go down in financial history books in terms of shareholder gains. However, a short squeeze is only a temporary phenomenon if the underlying business lacks solid fundamentals. This would be true even for GameStop and AMC if their sky-high stock prices don’t eventually equate to business growth. And that goes for many short-squeeze stocks.
Many investors take advantage of short-squeeze stocks by buying heavily shorted stocks when trading at or near all-time lows. However, unless there is a coordinated effort against institutional investors, identifying short-squeeze stock candidates remains a challenging task even for seasoned investors. Therefore, I want to discuss heavily-shorted stocks that look strong from a fundamental perspective aside from their inherent value as meme stocks.
Options volume has significantly surged amid the recent social media frenzy in meme stocks. Options traders have recently indicated that if a short-interest ratio is defined as the number of days to cover, more than ten days seems to be pretty high.
On a similar note, short interest as a percentage of float above 10% is relatively high as well. 20% is considered to be exceptionally high, and such shares would be short-squeeze candidates.
With that information, here are seven names that look primed to become short-squeeze stocks soon:
- Aterian (NASDAQ:ATER)
- Esperion Therapeutics (NASDAQ:ESPR)
- Globalstar (NYSEAMERICAN:GSAT)
- Gogo (NASDAQ:GOGO)
- Huya (NYSE:HUYA)
- Ontrak (NASDAQ:OTRK)
- Tattooed Chef (NASDAQ:TTCF)
Now, let’s dive in and take a closer look at each one.
Short-Squeeze Stocks: Aterian (ATER)
New York-based Aterian is a consumer products platform that builds, acquires and partners with e-commerce brands to create top-selling consumer products. The company utilizes a cloud-based platform that leverages machine learning, data analytics and natural language processing to streamline product management across online marketplaces worldwide.
Aterian released first-quarter results in early May. Revenue increased 88% year-over-year (YOY) to $48.1 million. Net loss stood at $82.6 million. Net loss per share surged 218% YOY to $3.15 compared to 99 cents in the prior-year quarter. Cash and equivalents ended the quarter at $26.7 million.
CEO Yaniv Sarig remarked, “Despite the challenges e-commerce faced with strains on the global supply chain throughout the first quarter, Aterian remains well-positioned to capitalize on the continued global acceleration of e-commerce adoption and expanding market opportunities in the long-term.”
Aterian acquires small consumer goods brands and helps them increase online sales volume worldwide via various marketing strategies developed by its e-commerce engine. As a result of the Squatty Potty acquisition, the company has raised net revenue guidance for 2021 to be in the range of $360 million to $390 million.
This business strategy requires substantial up-front investment. Once the company acquires a brand, that segment usually runs at a loss until products can gain enough market momentum. Reaching sales targets for each product is not a cheap undertaking.
Aterian is a small-cap stock that could have long-term growth potential. ATER shares hit almost $49 in mid-February. The stock currently hovers at $13 territory, down 25% year-to-date (YTD). The shares are trading at 1.3 times sales.
Esperion Therapeutics (ESPR)
Ann Arbor, Michigan-based Esperion Therapeutics is a pharmaceutical company specializing in developing and commercializing oral therapies to treat patients with high low-density lipoprotein cholesterol.
Esperion announced Q1 2021 results on May 4. Total revenue was $8 million, up from $1.8 million in the prior-year quarter. Net loss increased to $90.9 million, compared to $78.2 million a year ago. Diluted net loss per share came in at $3.50 compared to $2.84 in the previous year. Cash and equivalents ended the quarter at $218 million.
On the results, CEO Tim M. Mayleben cited, “We are encouraged by both our refined product positioning and data indicating that patients are returning to their physician offices, which together are expected to translate into accelerated prescription growth in the second half of the year.”
While the top-line growth seemed encouraging at first glance, the average analyst estimate was far higher at $22 million. In addition, the company also missed considerably on the bottom line. Due to disappointing results, ESPR stock plunged 21.8% on May 5 — the day after the release of its first-quarter results.
The shares currently trade below $19. So far this year, the stock is down almost 28% YTD, and has declined 63% over the past 12 months. The current price-sales (P/S) ratio stands at 2.2.
Short-Squeeze Stocks: Globalstar (GSAT)
Source: vchal / Shutterstock.com
Covington, Louisiana-based Globalstar is a global telecommunications company that derives revenue from the provision of mobile satellite services. Mobile satellite services are typically used by customers where existing terrestrial wireline and wireless communications networks are impaired or do not exist.
GSAT released first-quarter financial results in early May. Total revenue decreased 16% YOY to $26.93 million. Net loss stood at $ 36.33 million, representing a decline of $1.9 million compared to the prior year quarter. Diluted loss per share remained flat at 2 cents. Cash and equivalents ended the quarter at $8.4 million.
CEO Dave Kagan said, “…we announced the completion of the second lien warrant exercises. Down from the initial first lien principal balance of almost $600 million, we now only have a net principal balance of $84 million remaining, most of which is not due until the final maturity date in December 2022.”
On June 21, investment bank B. Riley (NASDAQ:RILY) started coverage of GSAT stock with a ‘Buy’ rating and a target price of $3.25 on the stock, more than double its value at the time. The investment bank indicated that the company is “at long last starting to realize a return” on its satellite and spectrum assets. The stock jumped 17.8%, followed by another 23% surge on the next trading day.
Globalstar has gained in popularity among retail investors at Reddit’s WallStreetBets forum. Retail investors have lifted GSAT stock to almost $3 in mid-February, leading to a 450% surge in its stock price. GSAT stock currently trades at $1.80, up 426% YTD. P/S and P/B ratios stand at 23.1 and 6.99, respectively.
Chicago-based Gogo is a leading provider of broadband connectivity services for the business aviation market. The company offers a customizable suite of cabin systems for highly integrated connectivity, inflight entertainment and voice solutions.
Gogo reported Q1 results in early May. Total revenue came in at $73.9 million, up 4% YOY. Net loss stood at $5.9 million, down from $9.4 million in the prior-year quarter. Net loss per diluted share came in at 9 cents. Cash and equivalents ended the quarter at $455 million.
CEO Oakleigh Thorne indicated that the company raised its 2021 top-line guidance to $310-325 million based on strong first-quarter performance and business momentum. The company is well-positioned to remain as a market leader in the business aviation market. Investor sentiment remains bullish, buoyed by Gogo’s product offerings.
The company recently disclosed Gogo Biz 4G Limitless, the first unlimited streaming and data Wi-Fi plan for business aviation clients. In addition, the recent sale of its Commercial Aviation business is expected to boost its financial position by reducing Gogo’s net debt. It could also new growth opportunities that include Gogo 5G.
GOGO stock hovers around $10.84, up 12.6% YTD. It has gained 211% over the past 12 months. The forward price-earnings ratio (P/E) stands at 108.7. GOGO shares are currently trading at 3.31 times its sales.
Short-Squeeze Stocks: Huya (HUYA)
Source: Piotr Swat / Shutterstock.com
China-based Huya operates live-streaming platforms in China, enabling broadcasters and viewers to interact with each other during live streaming. The company generates the majority of its revenue from sales of virtual items in live streaming platforms as well as from advertising and online game-related services.
The company released first-quarter financial results in mid-May. Total revenue came in at $397.6 million, an 8% increase YOY. Adjusted net income grew 8.4% to $28.3 million. Adjusted net income per diluted share was 12 cents in the first quarter, compared with 73 cents in the prior-year quarter. Cash and equivalents ended the quarter at $1.63 billion.
CEO Rongjie Dong highlighted, “We are actively advancing toward our vision of becoming a one-stop destination for comprehensive game-related services and working collaboratively to capture more opportunities across the industry value chain.”
Fueled by the pandemic, HUYA, a subsidiary of Tencent (OTCMKTS:TCEHY), is becoming a leading player in the massive gaming and streaming services space in China. The platform has captured a significant market share in that country, currently offering streaming services for over 4,000 games.
Around 27% of HUYA shares have been shorted as a percentage of the float. It implies that positive changes in the company’s outlook are most likely to lead to a short squeeze. The stock trades at $15 territory, down 25% YTD. Forward P/E and P/S ratios stand at 30.96 and 2.12, respectively.
Santa Monica, California-based Ontrak is an artificial intelligence (AI)-powered healthcare company. The Company’s PRE™ (Predict-Recommend-Engage) platform organizes and automates healthcare data integration and analytics. Ontrak particularly targets patients with behavioral health issues at risk of developing chronic conditions.
The group released first-quarter results in early May. Revenue grew by 133% YOY to $28.7 million. The bottom line remained red as adjusted net loss came in at $0.7 million, or 17 cents per share. Cash and equivalents stood at $92.4 million.
On these results CEO Jonathan Mayhew remarked, “Ontrak delivered strong financial results in the first quarter, and we continued to expand our relationships with health plans whose commercial and Medicare members urgently need access to quality behavioral healthcare services.”
In early February, OTRK stock plunged by 70% in a month after the company announced Aetna would cease to receive its services in the summer. Therefore, Ontrak decreased 2021 revenue guidance from $165 million to $100 million, representing around 21% growth from 2020.
However, management predicts the company could return to 100% revenue growth by 2022. More than 15,000 behavioral health caregivers are currently using the platform.
The company has recently attracted attention from short-sellers, with 32.5% of its float shorted. OTRK stock surged 13% in early June after becoming a short squeeze candidate on Reddit. OTRK stock currently trades just under $31 territory, down 50% YTD. The stock trades at 5.7 times of its sales.
Short-Squeeze Stocks: Tattooed Chef (TTCF)
Source: margouillat photo / Shutterstock.com
Tattooed Chef is a plant-based food company that offers sustainably sourced plant-based food products. Its products are often available in the frozen food sections of national retail foods stores stateside.
The company reported first-quarter financial results in mid-May. Total revenue increased 59% YOY to $52.7 million. The company reported a net loss of $7.9 million, compared to a net income of $5.8 million in the prior-year quarter. Net loss per diluted share stood at 10 cents. Cash and equivalents ended the year at $185 million.
CEO Sam Galleti stated, “Branded revenue increased 105% in the first quarter across the mass, club, and grocery channels driven by successful product launches, increased distribution, and a promotion at a large club chain.”
Despite a ‘$0 advertising budget,’ Tattooed Chef’s sales have been increasing. The number of stores carrying its products increased 41% during the first quarter. Tattooed Chef is anticipating between $235 million and $242 million in total revenue for 2021 and over $300 million in 2022.
Tattooed acquired Karsten Tortilla Factory and New Mexico Food Distributors in early May. The company aims to address the $1 billion Frozen Mexican Food category and use the new acquisitions as a stepping stone into the $20 billion market for the “Hispanic/Southwest” food segment.
TTCF stock has a high short interest, standing at almost 25% of float. As a result, the stock has significant potential to become a short squeeze candidate. Positive changes in the company’s outlook could force short sellers to close out their position, leading to a short squeeze.
The shares hover around $20 territory. The stock is down 12.6% so far this year. The current P/S ratio stands at 9.7.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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