Are These Penny Stocks In For A Short Squeeze?
Penny stocks are shares of companies that trade for less than $5 per share. They also tend to represent smaller companies. Their higher risk/higher reward makeup generally makes them a hot topic for retail traders. Any given day might see low-priced shares exploding to the upside to the tune of hundreds of percentage points. The bottom line is if you’re looking to buy stocks like these, be ready for volatility.
That type of stock market environment also includes other contributing factors. These may amplify the wild activity in the market. In this article, we look at one of the phenomena that can quickly speed up price spikes and drops for penny stocks: short squeezes.
What Is A Short Squeeze?
What is a short squeeze in the first place? A short squeeze is a situation where investors bet that a stock’s price will fall (by “short selling” the stock). If they’re right in their “bet,” they’ll make money when stocks go down. When shorting a stock, they borrow shares from their broker, sell them, and when the stock price falls, they repurchase the same quantity of stock and return it to their broker.
But if they’re wrong, they could be in for a rude awakening.
A short squeeze will force them to buy shares at a higher price to limit their losses. This buying activity can cause the stock’s price to rise further, creating a “squeeze” on the short sellers. Short squeezes can be triggered by various factors, such as positive news, a change in market sentiment, or a lack of shares available to be borrowed for short selling. The first place to look for short-squeeze stocks is short interest.
Short Interest Stocks To Watch
Rite Aid Corp. (RAD)
Short Data: Fintel – 33.45%, TDAmeritrade – 33.34%
Chances are you’ve been to or driven by a Rite Aid at some point in your life. But you might not know that, as of now, it’s trading as a penny stock. The company ran into trouble late last year thanks to bad earnings and a bearish outlook on 2023 performance figures. RAD stock has rebounded a bit toward the end of January, and short interest may be a focus.
Both data sources cited above have the RAD stock short float percentage sitting around 34%. The company recently named an interim CEO, Elizabeth Burr, and simultaneously began a search for a permanent one. In response, Burr said in a January 9th PR, “Having served as a Director since 2019, I have great respect for the important role Rite Aid plays as a full-service pharmacy improving health outcomes for millions of Americans…With Rite Aid’s well-established brand and its committed and talented team, I look forward to delivering on our business strategy and driving value for all our stakeholders.”
Sana Biotechnology Inc. (SANA)
Short Data: Fintel – 28.57%, TDAmeritrade – 15.68%
As you can see, the short float data on Sana Biotechnology is a bit skewed right now. Fintel shows it closer to 30%, while TDAmeritrade has it sitting below 16%. Regardless, the company continues making announcements, and the share price has increased over the last month.
Sana develops engineered cells to use as medicines. This week, in particular, the company has gained a bit more attention thanks to one of its first significant pieces of news in 2023. Sana announced that the FDA cleared its Investigational New Drug application to begin a first-in-human study of its SC291 platform. This is Sana’s treatment candidate for patients with B-cell malignancies.
Steve Harr, Sana’s President, and CEO, also mentioned in a press release, “We look forward to understanding the safety, potency, and persistence of these cells in patients, and we are optimistic that SC291 can become an important medicine for patients with these difficult cancers. Furthermore, this platform forms the backbone for additional development of CAR T cells targeting CD22, BCMA, and beyond.”
The company expects initial clinical data from the SC291 study later this year.
Canoo Inc (GOEV)
Short Data: Fintel – 25%, TDAmeritrade – 19.22%
Shares of EV company Canoo Inc. are on the list of penny stocks with higher short interest this week. Fintel and TD show the data sitting between 19% and 25% as GOEV stock struggles to hold levels at the 50-day moving average.
While most of January has been uneventful for the stock, the last week has been much different. Canoo has reported several key updates heading into month-end. Canoo inked a partnership with GCC Olayan to exclusively distribute its EVs in Saudi Arabia. The company also appointed a Chief Financial Officer, Ken Manget.
Regarding the Saudi Arabia distribution partnership, Canoo emphasized the deal’s potential in a PR earlier this week.
“The Olayan Group is a global business leader with decades of experience in distribution partnerships with some of the world’s leading brands, and they are a proven partner to support EVs in the region,” said Tony Aquila, Chairman & CEO at Canoo.
It may be worth noting that Saudi Arabia’s Vision 2030 set a course for EV adoption and sustainable mobility solutions to be put in place. Further, the Saudi Green Initiative has set a goal of 2060 to reach net zero emissions.
Gossamer Bio Inc (GOSS)
Short Data: Fintel – 34.86%, TDAmeritrade – 30.21%
Shares of Gossamer Bio could be in focus for some after seeing the latest short data. It currently sits in the low 30% range as the company’s shares wade water in the stock market this year. No significant headlines have been released to date.
Last year, Gossamer announced Phase 2 trial data in its study of seralutinib for treating pulmonary arterial hypertension. Among several points of focus was a serious adverse event in the seralutinib arm of the study. Overall treatment-emergent adverse events were reported in 86% and 93% of patients in the placebo and seralutinib arms.
Even with that as the case, there was optimism regarding efficacy results. Pulmonary Hypertension Division head at the University Hospital in Giessen explained, “highlit compelling potential differentiation for seralutinib as an anti-proliferative, anti-inflammatory, and anti-fibrotic therapeutic candidate with possible reverse remodeling effects.”
Earlier this month, State Street Corporation and Millennium Management filed Schedule 13Gs showing stakes in GOSS stock ranging from 5.1% to 29.47% (State Street). While those reports have been out for weeks, it may be something traders are paying attention to if GOSS is on their list of penny stocks to watch.