3 Heavily Shorted Stocks With Squeeze Potential Identifying good short squeeze candidates starts with finding companies that have a high short float percentage. Here are three highly shorted stocks that if provided the right accelerant, could produce...
By MarketBeat Staff •
This story originally appeared on MarketBeat
The intense magnitude of 2021's biggest short squeezes has attracted much interest from retail traders on the subject. There will almost certainly be more fireworks in 2022, but from where they will be launched is anyone's guess.
If there was a perfect formula to predict stocks that are prone to a short squeeze, we'd all be on yachts. Like any investment strategy, capturing an unusually big gain requires some homework and a stroke of good fortune.
Identifying good short squeeze candidates starts with finding companies that have a high short float percentage. This means short sellers own a large portion of the publicly available share count. Low float stocks are sometimes ideal since they are harder to come by and can therefore experience huge run-ups.
From there, the short squeeze is often ignited by a major news catalyst, heavy social media interest, immense options activity, or some combination thereof. These are hard to foretell.
But focusing on our initial criteria of a high short float, here are three stocks that if provided the right accelerant, could produce some epic squeezes.
What Could Cause an Allbirds Short Squeeze?
Allbirds (NASDAQ: BIRD) has all the markings of a short squeeze candidate despite its limited tenure in the public market. The 25 million share float represents less than 20% of the shares outstanding which checks the low float box. Then there's the 45.5% short float percentage which means nearly half of the available shares are in the hands of short sellers. A short ratio of 3.8 also points to a potential lasting squeeze because it means it would take almost 4 days for shorts to cover their position based on the stock's normal trading volume.
Shares of the eco-friendly footwear and apparel maker flew above $30 on the IPO day but have been grounded by supply chain disruptions and the latest pandemic setback. They are sliding back toward the $13 level which if breached would mark a new low. Not even a January 6th upgrade at Morgan Stanley could stem the decline.
What could get Allbirds' wings flapping again? Supply chain improvements and diminished Omicron concerns would help, but more is needed. The company will need to impress when it reports Q4 and full year results next month. Sales are expected to have soared 24% in 2021 but a better-than-expected holiday quarter could spark a reversal.
The secret weapon here, though, may by Allbirds' ESG-friendly nature which is derived from its use of eucalyptus trees and sugarcane to make sneakers and clothing. If social media and sustainable investing proponents get behind this stock, given the short selling data, Allbirds could fly.
Will Bed Bath & Beyond Stock Squeeze Again?
Bed Bath & Beyond (NASDAQ: BBBY) is no stranger to short squeeze activity having staged multiple high volume surges last year. The popular meme stock was one of the biggest winners of the January 2021 short squeeze derby and still has the makings for another run. Aside from remaining a hot topic of discussion among armies of retail traders, Bed Bath & Beyond's float is 26% shorted and the stock has a 2.5 short ratio.
There's good reason the retailer continues to get pummeled by the bears. It has been hard hit by supply chain constraints and inventory shortages not to mention rising transportation costs. While these headwinds are industrywide, Bed Bath & Beyond's slow e-commerce development has complicated matters. A company that was once expected to produce a sizeable 2021 profit is now expected to report a loss.
On the bright side, Bed Bath & Beyond's e-commerce capabilities are improving. Subscriptions are on the rise and website visitors are sticking around more often to make purchases. Meanwhile, company insiders have been buying shares like they too will soon be missing from store shelves. If management can produce some better-than-expected quarterly results and present a brighter outlook for 2022, the troops could be rallied for another powerful short squeeze.
Is Beyond Meat Stock a Short Squeeze Candidate?
Once a must-have high flying growth stock, Beyond Meat (NASDAQ:BYND) is on pace to post its seventh consecutive monthly decline. The plant-based meat products supplier has been pounded by labor shortages and logistics snags that have contributed to weaker than expected financials during the economic recovery. Negative sentiment around restaurant traffic and retail execution have contributed to the stock's current 36% short float.
The equally daunting 5.1 short ratio implies that it would take short sellers a full trading week to cover their positions should a squeeze attack ensue. For this to occur, however, options trading will likely have to shift from bearish to bullish. This could be starting to happen with the February 4th options presently at a 0.57 put-to-call ratio, the lowest it has been in a while.
What could also spark a turnaround is a contrarian bull among sell-side research firms. Not one Wall Street analyst has called Beyond Meat stock a buy since Citigroup gave it an optimistic $122 price target in late-October. If the market starts to warm up to the alternative burger maker after its Q4 report, Beyond Meat could be sizzling again by Spring.
