These stocks are primed for short squeezes.
There's no question that 2021 has been the year of the short squeeze. Groups of online retail traders have repeatedly orchestrated buying campaigns on Reddit and other social media platforms, targeting some of the most heavily shorted stocks in the market in an attempt to generate short squeezes. A short squeeze is a large, short-term spike in a stock's price triggered when multiple short sellers are forced to exit their positions by buying shares of the stock. Here are eight companies that have all the ingredients to be the next major short squeeze stocks, according to market analysis firm Ortex Analytics.
Cortexyme Inc. (ticker: CRTX)
Cortexyme is a biotechnology company developing treatments for Alzheimer's and other neurodegenerative diseases. The stock has crashed more than 85% since the beginning of October and most of the sell-off occurred following the disastrous trial results of its former leading drug candidate atuzaginstat, which failed to reach efficacy goals in an Alzheimer's disease trial. Short sellers subsequently piled into the stock and Ortex estimates that about 44% of CRTX's float, or free-trading shares, is now held in short positions. That percentage is up from just 14% in mid-October.
Heron Therapeutics Inc. (HRTX)
Heron Therapeutics specializes in drugs that treat chemotherapy-induced vomiting and surgical pain. Sales of drugs such as Cinvanti and Sustol have lagged behind expectations, and Heron's acute pain medication Zynrelef didn't initially receive as broad of a label as the company had hoped. In October, Heron announced it has filed for a "significant expansion" of Zynrelef's approved uses. Ortex first identified Heron as a potential short squeeze stock last month, but shares are down another 20% since the beginning of November. Meanwhile, Heron's short interest is up to about 45% of its float as short sellers bet on more lows ahead.
Beyond Meat Inc. (BYND)
Plant-based meat substitute company Beyond Meat's disastrous year went from bad to worse in November when the company reported a quarter-over-quarter decline in revenue and issued weaker-than-expected guidance. The stock is down more than 46% this year, and short sellers smell beet juice in the water. Beyond Meat's 2019 high of $239.71 after its initial public offering is now a distant memory. Investors were betting on a growth stock with a massive addressable market, but short sellers see an overvalued stock trading at 9.5 times sales with decelerating growth in an increasingly competitive market. Beyond Meat's short interest is now about 41% of its float.
Gaotu Techedu Inc. (GOTU)
Gaotu Techedu is a Chinese exam preparation and tutoring company. The stock is down a whopping 95% this year. Chinese regulators have targeted education companies within a broader government crackdown on the tech sector in 2021. In July, the Chinese government announced that it would ban companies like Gaotu from operating for-profit tutoring services for children. In November, China said it would issue licenses to after-school tutoring companies, but details remain scarce. Short sellers are betting that few buyers want to get involved with such an uncertain situation. Gaotu's short interest is about 35% of its float.
Lemonade Inc. (LMND)
Lemonade is an insurance technology company that wants to streamline the way customers shop for insurance and file claims. Lemonade went public at an IPO price of $29 in July 2020. After roaring out of the gates to an all-time high of $188.30 in early 2021, the stock has since pulled back below $50. Lemonade has reported impressive growth numbers, including 101% year-over-year revenue growth in the third quarter. Unfortunately, the company's net losses also continue to rise, a red flag for short sellers. Lemonade's short interest is now about 35% of its float.
Esperion Therapeutics Inc. (ESPR)
Esperion Therapeutics is a biotechnology company focused on low-density lipoprotein-lowering therapies. The stock plummeted more than 40% on December 3 after the company raised $225 million via a public offering of 32.1 million shares and short-term warrants. Each share of common stock was sold paired with one warrant at a combined price of $7 per share. The offering provided funding for Nexletol and Nexlizet drug commercialization and the development of additional assets. Shareholder dilution and debt can be a short seller's best friends. Esperion's short interest stands at about 32% of its float.
Weibo Corp. (WB)
Weibo is a leading social media platform in China. Shares are down more than 15% this year despite the company reporting 30% year-over-year revenue growth and 37% year-over-year net income growth in the third quarter. For most stocks, those growth numbers would be incredibly bullish, but Americans are dumping Chinese stocks in droves thanks to the country's regulatory crackdown on tech companies. The recent delisting announcement for Chinese ride-hailing company Didi Global Inc. (DIDI) sent Weibo shares to new 2021 lows, but any positive headlines could easily trigger a short squeeze at this point. Weibo's short interest is about 30% of its float.
Gogo Inc. (GOGO)
Gogo specializes in internet connectivity in the aviation industry. Gogo shares stumbled in November even after the company reported yet another quarter of impressive growth numbers and raised its full-year earnings and revenue guidance. The pullback provided much-needed relief for short sellers who had been getting squeezed by a roughly 70% year-to-date gain through the end of October. Unfortunately, the near-term outlook for global business travel has become more uncertain thanks to the new omicron COVID-19 variant, which may have emboldened Gogo short sellers. Gogo's short interest is about 30% of its float.
Short squeeze stocks that could take off in December:
-- Cortexyme Inc. (CRTX)
-- Heron Therapeutics Inc. (HRTX)
-- Beyond Meat Inc. (BYND)
-- Gaotu Techedu Inc. (GOTU)
-- Lemonade Inc. (LMND)
-- Esperion Therapeutics Inc. (ESPR)
-- Weibo Corp. (WB)
-- Gogo Inc. (GOGO)