Today, we’re diving into the world of short-squeeze penny stocks. This is a topic that’s been making headlines and for good reason. But before we get into the nitty-gritty, let’s start with the basics.
What is Shorting?
Shorting, or short selling, is a strategy where an investor borrows shares of a stock from a broker and sells them immediately at the current market price. The goal? To repurchase them later at a lower price, return the borrowed shares to the broker, and pocket the difference. It’s a bet that the stock’s price will drop.
However, short selling is not without its risks. If the stock’s price rises instead of falling, the short seller may have to buy back the shares at a higher price, resulting in a loss. This brings us to the concept of a short squeeze.
The Short Squeeze Phenomenon
A short squeeze occurs when a heavily shorted stock’s price rises sharply. This can happen due to positive news about the company, a general market uptick, or even a coordinated buying effort by a group of investors. As the price rises, short sellers scramble to cover their positions (i.e., buy back their borrowed shares) to minimize their losses. This rush of buying activity can drive the price even further, causing a ‘squeeze’ on those who shorted the stock.
Why Look at Stocks with High Short Interest?
Now, you might wonder, “Why would anyone want to dive into this high-risk, high-reward arena?” Well, stocks with high short interest can present unique opportunities for savvy investors.
First off, there’s the whole “short squeeze” scenario. It’s when a heavily shorted stock starts to see its price increase. This forces those who shorted the stock to repurchase it to cover their positions. This extra buying can push the price up even more. So, if you’re holding the stock when this happens, you could make a pretty penny. Some investors try to anticipate these short squeezes and buy the stock beforehand.
Then there’s the contrarian angle. When many investors are shorting a stock, it might mean they’re really down on the company’s prospects. But what if they’ve got it wrong? What if the market is too pessimistic?
If you think that’s the case, you might see this as a chance to buy the stock cheaply. And finally, some investors might look at heavily shorted stocks to balance out their portfolio. If they’re mainly betting on stocks going up, shorting a few stocks that they think are overvalued or in trouble can provide some insurance against the market downturn.
But let me tell you, investing in heavily shorted stocks isn’t a walk in the park. It’s risky. You could lose money if those short sellers are correct and the stock price tanks. So, as always, do your homework and understand what you’re getting into before you take the plunge. This article discusses a handful of penny stocks to watch with higher short interest. Will they squeeze?
Short Squeeze Penny Stocks To Watch
Sirius XM Holdings Inc. (SIRI)
Satellite radio company Sirius XM Holdings has recently caught a boost of momentum this week. The move comes after several days of selling pressure on SIRI stock below $3.70. Shares of Sirius imploded earlier this year with recessionary fears and lackluster earnings, forcing some to head for the hills.
While earnings haven’t improved much, sentiment in the stock market may have for now. The focus has been on SIRI stock’s short interest. According to the latest data from Fintel, the current short float on the penny stock sits at around 31.7%. TDAmeritrade data shows this figure slightly higher at roughly 32.6%.
EOS Energy Enterprises (EOSE)
EOS Energy is another one of the penny stocks to watch with higher short interest. The company develops zinc-based energy storage systems. With clean energy stocks remaining a core focus in the last few weeks, EOSE stock has seen an uptick in activity and stock price. Its Znyth battery is designed as a direct competitor to lithium-ion batteries.
The latest round of earnings helped give EOSE stock a boost. While it missed earnings per share estimates, sales beat expectations significantly. Eos reported $8.84 million, while the Street anticipated $3.1 million. Eos Chief Executive Officer Joe Mastrangelo said, “The Eos team delivered a solid first quarter, with continued backlog growth, strong manufacturing performance, and 1 GWh of discharged energy in the field, all while raising additional capital that enables us to scale operations and accelerate our market competitiveness.”
This week attention continues to be placed on the outlook of the company based on analyst ratings. EF Hutton raised its price target on the stock to $4.50 and has a Buy rating. Regarding short data, Fintel has this figure at around 22%.
Hyzon Motors (HYZN)
Hyzon Motors is a supplier of zero-emission heavy-duty fuel cell electric vehicles. The company offers solutions in the transportation sector. Shares of HYZN stock slowly climbed back since reaching fresh 52-week lows last month. The drop came as Hyzon transitioned some of its leadership team, including its CEO and certain Board members.
This month HYZN stock caught a more substantial surge of bullish sentiment thanks to a recent deal with Performance Food Group (NYSE: PFGC). The two agreed to five fuel-cell electric vehicles.
Commenting on the milestone, Hyzon’s chief executive officer Parker Meeks said, “This agreement for up to 50 hydrogen-powered trucks demonstrates how Hyzon intends to build customer familiarity with a new technology as the hydrogen infrastructure accelerates.”
Where does the HYZN stock short float percentage sit? According to TD Ameritrade, the penny stock’s short float is roughly 24.3%.
Vroom missed sales expectations but narrowly beat Q1 EPS based on its last report. Bob Krakowiak, Vroom’s Chief Financial Officer, explained, “We succeeded in reducing per-unit costs across 1) logistics, 2) sales, 3) titling, registration and support, and 4) fixed costs. We completed reductions in force in January and April 2023 which we expect to generate annualized cost savings of approximately $42 million. We further strengthened our balance sheet by repurchasing $15 million of our convertible notes and enhanced our liquidity by executing the 2023-1 securitization at UACC. During 2023, we will continue to pursue opportunities to reduce costs, strengthen our balance sheet and enhance our liquidity.”
VRM stock is gaining plenty of attention in sympathy with companies like Carvana (NYSE: CVNA), which have exploded recently. Carvana reported a better profit outlook in its most recent second-quarter earnings results. This has helped bring some bullishness to companies in the used car retail space.
That hasn’t stopped short interest from coming into some of these names, especially after the most recent surge. In this case, the VRM short float percentage sits at roughly 16.7%, according to data from TD Ameritrade.