Speculator’s Watch List: 7 Stocks Ripe for a Short-Squeeze Windfall
Easily one of the most powerful catalysts in the capital markets, short-squeeze stocks deserve to be on your radar because of their ability to foster panic. Subsequently, this panic forces bearish traders to cover their short positions, in turn making the underlying security rise ever higher.
For those unaccustomed to the market and the concept of short-squeeze stocks, I put together a 60-second video. Essentially, the gist of the matter is that a rising share price forces bears to either cut their losses now or wait it out and hope for the best. Unfortunately for the pessimists, a security can rise indefinitely, which could yield immeasurable pain.
To use a baseball analogy, imagine a pitcher intentionally walking a dangerous hitter. However, if the next person up safely puts the ball into play, suddenly, the pitcher faces a leveraged situation. Another hit can easily turn the momentum due to a run batted in. That’s the fear inherent in short-squeeze stocks and they can be incredibly powerful for contrarian bulls.
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Short-Squeeze Stocks: Cava Group (CAVA)
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A food manufacturing firm, Cava Group (NYSE:CAVA) specializes in healthy Mediterranean delicacies. If the company’s offerings are as robust as the word salad it deploys to describe its business, they must be quite scrumptious. Anyways, the company is supremely relevant based on its shifting consumer behaviors. Per a recent study, 80% of surveyed millennials consider health benefits when selecting foods.
Subsequently, this framework should help lift CAVA shares much higher. However, after an initial strong run following its initial public offering earlier this year, CAVA has disappointed. Now, since its first closing price, the company lost about 22% of equity value. Obviously, that’s not a great look and the bears have taken notice.
According to Fintel, CAVA’s short interest as a percentage of its float clocks in at 20.6%. Generally, a short interest above 10% is fairly high, with anything above 20% being extremely so. In addition, CAVA’s short interest ratio stands at 8.88 days to cover.
Still, analysts like CAVA, rating it a moderate buy with a $40.25 price target, implying over 17% upside. Therefore, it could be one of the short-squeeze stocks to speculate on.
Xponential Fitness (XPOF)
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Labeled as a boutique fitness center, Xponential Fitness (NYSE:XPOF) states on its website that it’s the largest global franchise group of its particular industry subsegment. Notably, the company offers a variety of activities, including Pilates, barre, cycling, rowing, boxing and other fitness regimens. Additionally, multiple media outlets featured Xponential, making it a fast-rising entity.
In theory, the company should benefit from the ongoing post-pandemic recovery process. With Covid-19 fears plunging, people are generally ready to reclaim their lives. A big part of that is fitness. Understandably, many of us during the lockdowns incurred unwanted weight gain. So, a health component exists here along with a social interaction angle.
But does Wall Street care? Not right now. Since the January opener, XPOF hemorrhaged 37% of equity value, which isn’t encouraging. In turn, XPOF prints a short interest of 21% of its float. Also, the short interest ratio soared to 16.75 days to cover.
Still, XPOF could be one of the short-squeeze stocks because analysts love it. Right now, XPOF features a moderate buy view with a $27.50 price target, projecting almost 93% growth.
Short-Squeeze Stocks: Edgewise Therapeutics (EWTX)
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Headquartered in Boulder, Colorado, Edgewise Therapeutics (NASDAQ:EWTX) specializes in tackling rare muscle disorders. Per its website, the clinical-stage biopharmaceutical company commands intimate knowledge of integrated muscle physiology at a whole-body level. This acumen allows the firm to develop innovative solutions for patients with muscle disease where significant unmet medical need exists.
Undeniably, Edgewise represents a feel-good narrative in the market because it offers hope to patients and their families. Unfortunately, EWTX just hasn’t enjoyed much traction this year. Since the beginning of January, it slipped more than 26%. And over the past five years, the biopharma suffered a deep loss of over 78%.
Given the massive red ink, it’s not surprising that the bears have put Edgewise in their crosshairs. Presently, EWTX’s short interest comes in at 21%. Also, the short interest ratio stands at a remarkably high 25.11 days to cover.
However, such concentrated bearishness means EWTX could be one of the short-squeeze stocks to watch. Analysts certainly think so with a unanimous strong buy rating. They also anticipate shares hitting $26.40, implying 308% upside.
Red Robin Gourmet Burgers (RRGB)
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Founded in 1969, Red Robin Gourmet Burgers (NASDAQ:RRGB) represents an icon among U.S.-based casual dining chains. Often a place to get great comfort food, Red Robin – despite the overhang of inflation and high borrowing costs – brings much to the table. Yeah, people will be watching their spending if conditions worsen. Still, we can’t expect everybody to become luddites.
Put another way, Red Robin could be a benefactor of the trade-down effect. Rather than go cold turkey on discretionary pleasures, consumers may merely trade down to cheaper alternatives. Theoretically, this dynamic could help RRGB. And sure enough, shares have skyrocketed almost 64% since the beginning of the year.
However, the upswing also attracted the bears, who believe that RRGB may be due for a correction. Currently, shares carry a short interest of 21.63% of the float, per Fintel. Also, RRGB’s short interest ratio clocks in at a staggeringly high 30.42 days to cover.
Nevertheless, Red Robin could be one of the short-squeeze stocks to watch. Analysts view it as a moderate buy with a $15.50 target, implying over 63% growth.
Short-Squeeze Stocks: Kura Sushi (KRUS)
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One of the riskiest ideas among short-squeeze stocks to speculate on, Kura Sushi (NASDAQ:KRUS) is a specialty restaurant. Specializing in revolving sushi bar, the beauty of the business model is turnover. When guests come in, they can immediately choose whatever they want from a variety of dishes. Plus, if they want something specialized, they can conveniently order it on the digital menu.
Another element that could theoretically bolster Kura Sushi is the socialization aspect. Generally, these places are rather intimate, seating people close together. Obviously, that didn’t sit well during the worst of the Covid-19 pandemic. With that crisis largely in the rearview mirror, Kura enjoys clearer skies. And the market agrees, bidding up KRUS nearly 33% on a year-to-date (YTD) basis.
However, now the bears believe that it’s due for a correction, perhaps due to concerning economic winds. Whatever the reason, KRUS’ short interest is 20.45% of its float. Also, the short interest ratio stands at a remarkably high 68.54 days to cover.
Analysts still view KRUS as a moderate buy with a $73.17 price target, implying over 16% upside. So, it’s one of the short-squeeze stocks to watch.
Blink Charging (BLNK)
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Perhaps in any other circumstance, Blink Charging (NASDAQ:BLNK) would decisively represent one of the top securities to purchase. With electric vehicles being the future and all, Blink’s charging infrastructure certainly commands relevance. Unfortunately, a wide range of headwinds have impacted the sector, causing pain throughout the entire value chain. Quite obviously, the hurt did not spare BLNK.
Since the January opener, shares hemorrhaged more than 66% of equity value. Technically, per data from Google Finance, BLNK is up roughly 67% in the trailing five years. And to be sure, the bulls are hoping to spark a healthy recovery. In the trailing month, BLNK gained 49%. This performance stemmed from the company’s third-quarter earnings report. Specifically, revenue beat the Street’s expectations.
Nevertheless, the bears don’t seem interested in cutting Blink some slack. Per Fintel, BLNK’s short interest clocks in at 30.82% of its float. It’s also one of the most heavily shorted securities, per the investment resource.
Interestingly, the negativity suits analysts just fine. They maintain a moderate buy view with a $7.83 target, projecting almost 113% growth.
Trupanion (TRUP)
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By arguably most measures, pet insurance provider Trupanion (NASDAQ:TRUP) seems an idea to give up on. Yes, Americans love their pets. However, as I explained during my interview with CGTN America, pet owners are increasingly finding it difficult to pay for that love. One statistic I brought up is that the inflation rate for pet products and services is twice that of their “regular” counterparts.
At a certain point, that love may be put to the test. As NPR mentioned, during the Great Recession, households hit by rough circumstances were forced to abandon their furry family members. It’s possible that such an abandonment might occur yet again if we encounter similar economic pain. If that wasn’t enough of a warning, TRUP lost almost 41% YTD.
Not shockingly, the bears have been attacking TRUP, which prints a short interest of 33.92% of its float. Also, the short interest ratio lands at 28.54 days to cover.
Still, it’s also possible that circumstances might play out differently this time. Analysts view TRUP as a moderate buy with a $36.83 target, implying 36% upside.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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