Short-squeeze hunters seek out the stocks most heavily bet against by short sellers in an attempt to defeat them at their own game… and make profits along the way.
For a short squeeze to occur, the stock must first have a high level of short-selling activity — at least 15% of the stock's float. Retail investors then pile in, causing a surge in buying volume.
Under the right conditions, short sellers become squeezed and are forced to close out their positions as their losses accumulate and their margins are reset.
Now, a lot of the time, companies that see a high level of short selling usually have problems in their business fundamentals. In many cases, shorting a stock may be a rational strategy.
But many retail investors have taken it personally — especially when their favorite stocks have been the target of the vicious short-selling activity.
Based on the above attributes, we have listed some names that may be on the verge of short-squeeze activity in June.
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Redbox (RDBX) - is known for its public kiosks that allow users to rent DVDs. Those kiosks account for about 90% of the company's revenue — the rest comes from on-demand streaming services.
Years ago, Redbox was publicly traded but was purchased by an asset management company and taken private in 2016. Last year, it popped back onto the stock market thanks to a SPAC (special purpose acquisition company) deal.
In May 2022, Chicken Soup for the Soul Entertainment (CSSE), which owns the Crackle streaming service, acquired Redbox for about $31 million.
The deal will take months to close. In the meantime, Wall Street has been bearish on the company.
Redbox ended 2021 with 38,379 rental kiosks in 32,586 locations, a decline from the 40,026 kiosks in 33,661 locations it had in 2020.private placement warrants (6,062,500) with an exercise price of $11.50. This implies that if Redbox shares exceed the given value,the warrants will be exercised and the float will become much larger.
At the time of writing, Redbox shares trade at $6.67.
2. Solo Brands
Grapevine, Texas-based company Solo Brands (DTC) sells outdoor products such as fire pits, stoves, kayaks, paddleboards, and other accessories. Since its IPO late last year at $17 per share, Solo Brands' share price has been crumbling. Shares peaked at nearly $23.39 before plummeting to a low of $3.66.
Solo Brands currently has a market cap of $261.85 million and has a strong buy recommendation from six Wall Street analysts. However, after it recently reported its Q1 earnings, Citigroup analyst Wendy Nicholson her price target (although she remains bullish on DTC for the long term).
Recently, the company's CFO, Somer Webb, bought $300,000 worth of DTC shares. It's always a bullish sign when insiders bet in favor of their stock.
However, Solo Brands shares remain a strong short-interest target. About 21% of DTC's float of 7.96 million shares is being shorted.
Wall Street experts are forecasting upside for the long term, and its business fundamentals look promising. So a bet on this heavily shorted stock should have relatively low downside risk.
Last but not least, we have Aterian (ATER) - , a software platform that applies data analytics and machine learning to end-consumer products. As we have mentioned a few times in our channel, Aterian was the short squeeze of the moment during April, shooting up 180% during the month and reaching $6.55 per share. The hype surrounding the stock on the main Reddit threads and in social media in general were the main drivers for these events.
However, after a sharp drop since May, Aterian is back trading around $3. Investors and traders are keeping an eye on possible new moves in the stock. About 16% of its float is being shorted, according to Morningstar's latest data.
However, besides its popularity among retail investors, Aterian draws attention for its dilution risk until at least September. In March, Aterian announced that there were more than 7 million remaining warrants at an exercise price of $3.20 and that these couldn't be exercised for six months.
That negated the possibility of short-term dilution, which in turn worked to limit the number of shares available on the market (bad news for short-sellers who need to cover).
This way, Aterian is still in the running for a short squeeze in June. It wouldn't be a surprise if the hype volatile meme stocks influenced the sentiment around Aterian stock as well.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)