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5 Heavily Shorted Stocks To Watch Right Now

When a company’s stock is heavily shorted, it is often indicative of problems with that company’s underlying business. Sometimes, however, highly shorted companies can be set up for a squeeze.
  • Short selling is a risky proposition: it can generate considerable gains, but on the other hand, losses can theoretically be infinite.
  • When a short ratio grows to high, sudden and significant buying momentum can trigger a short squeeze. Shorts are forced to cover their positions to stem losses, and prices skyrocket.
  • Here, we look at five companies with high short ratios that may be readying for a squeeze.

Lucid Motors

With a market cap of $24 billion, luxury EV maker and former SPAC Lucid Motors  (LCID) - Get Free Report currently has about 20.8% of its float shorted. The company was called “the next Tesla” TSLA, by some after its debuted on the stock market in July 2021. However, Lucid focuses on higher-end vehicles than Tesla.

Figure 1: Luxury EV maker and former SPAC Lucid Motors currently has about 20.8% of its float shorted.

Figure 1: Luxury EV maker and former SPAC Lucid Motors currently has about 20.8% of its float shorted.

Like many SPACs, though, LCID soared then stumbled. Lucid shares are down more than 70% off their ATH. Macro bearishness and rising interest rates have weighed heavily on high-growth stocks.

Lucid has been forced to cut its full-year guidance deliveries twice. And recently, the company said it expects to deliver only 6,000 to 7,000 vehicles in 2022. The company also filed to sell securities worth $8 billion to remain resilient amid sharp declines.

Despite all the rough news, Wall Street experts have a bullish consensus for Lucid over the long term. They offer a median price target of $21.6, which implies an upside of 54%.

This valuation stems from Lucids aggressive expansion plans. Lucid Air – company’s first-ever product – already has 37,000 reservations, and the company has already begun construction of a manufacturing facility in Saudi Arabia. In addition, Lucid has already signed an agreement with the Saudi government to purchase up to 100,000 EVs from Lucid by 2030, ensuring a good future revenue outlook.

Chewy

E-commerce pet retailer Chewy  (CHWY) - Get Free Report, founded by current GameStop  (GME) - Get Free Report Chairman Ryan Cohen, today has a market cap of $13.34 billion. About 38.8% of its float is currently shorted, and Chewy shares are down 44% year-to-date.

Figure 2: E-commerce pet retailer Chewy, today has a market cap of $13.34 billion.

Figure 2: E-commerce pet retailer Chewy, today has a market cap of $13.34 billion.

Much of this decline in Chewy shares is due to broader market pullbacks. However, Chewy's sharper decline is also due to a generalized shift in e-commerce demand, prompted by price increases affecting consumer purchasing power.

The market’s focus has been on Chewy's falling sales growth rate in recent quarters. Chewy's sales are expected to grow only 12% this year, after soaring more than 24% last year.

However, several Wall Street experts see a good opportunity to buy Chewy at its current levels. The current consensus puts the stock at a “moderate buy.” CHWY’s consensus one-year target price is $45 per share, which implies an increase of almost 50% from the current share price of $30.66.

Teladoc Health

Teladoc Health  (TDOC) - Get Free Report acts as an online health provider via its telehealth platform. The company has a market cap of $4.39 billion, and about 22.3% of its float is held short.

Figure 3: Teladoc has a market cap of $4.39 billion, and about 22.3% of its float is held short.

Figure 3: Teladoc has a market cap of $4.39 billion, and about 22.3% of its float is held short.

Famed tech investor Cathie Wood of Ark Invest is one of the biggest Teladoc bulls. The online health provider is now the ninth largest holding in Wood’s flagship fund Ark Innovation ETF  (ARKK) - Get Free Report – the fund owns about $455 million shares worth.

However, Teladoc shares have plummeted 71% YTD. Poor cumulative earnings over the last twelve months, expectations of a 45% drop in forward EBITDA growth for the next year, and poor sentiment on tech stocks in general have collectively sent investors running for the hills. Short sellers, meanwhile, have had a great time.

Wall Street analysts have a neutral consensus on Teladoc at the moment. Unprecedented execution risks are the main reason for expert skepticism. Nevertheless, the median price target remains bullish; it stands at $38, implying an upside of 41% from the current $26.90 per share.

MicroStrategy

MicroStrategy  (MSTR) - Get Free Report is a company that operates as a provider of enterprise analytics and mobility software. However, the company's primary business strategy is to acquire and hold Bitcoin  (~BTCUSD) .

Figure 4: MicroStrategy's primary business strategy is to acquire and hold Bitcoin.

Figure 4: MicroStrategy's primary business strategy is to acquire and hold Bitcoin.

MicroStrategy views Bitcoin as a long-term investment and has no plans to engage in trading. The company says it appreciates the cryptocurrency's robust architecture and sees it as a solid store of value.

Currently, MSTR’s market cap stands at $2.07. A whopping 38% of its float is sold short. Year-to-date, MicroStrategy shares have plummeted 66%, roughly in line with Bitcoin's 60% plunge over the same period.

It’s no wonder the company’s share price is closely tied to Bitcoin’s price. MicroStrategy started buying Bitcoin in the mid-2020s at the $12,000 mark, and it has already taken on more than $2.36 billion in debt to buy Bitcoin. It also siphoned $300 million in cash from its balance sheet in June and has scooped up all free cash flow generated since then.

The latest report shows that MicroStrategy owns about 130,000 BTC collectively purchased at a purchase price of almost $4 billion - more than its current market cap.

The company does not get much coverage from Wall Street experts. The latest ratings, provided two months ago, are bullish however. They indicate a target price of $500 per share - a staggering 170% difference from the current $185 per share level.

Virgin Galactic

Virgin Galactic  (SPCE) - Get Free Report is a space tourism company that went public via the SPAC book last year. Virgin Galactic was founded by billionaire Richard Branson. The company today has a market cap of $1.24 billion, and currently 20.5% of its float is sold short.

Figure 5: Virgin Galactic was founded by billionaire Richard Branson and today has a market cap of $1.24 billion.

Figure 5: Virgin Galactic was founded by billionaire Richard Branson and today has a market cap of $1.24 billion.

In July of last year, Branson successfully went into space aboard Virgin Galactic's spacecraft. In anticipation of this event, SPCE shares soared. However, after Branson's flight, the euphoria wore off and shares have been in free fall ever since. This year alone, they have already dropped more than 64%.

In recent quarters, Virgin Galactic has been a spending machine. It has generated a negative earnings yield of 26% and now expects a 11.2% drop in EPS this year. Plus, this year alone, the company has twice postponed its planned suborbital flights, adding to a track record of pushing back launches.

The Wall Street consensus is bearish on Virgin Galactic stock. Of the six analysts covering the stock in the last three months, four of them have a “sell” recommendation. However, SPCE's average price target stands at $6.25, signaling an upside of almost 30% compared to its current $4.84 share price.