A short squeeze occurs when a stock that is heavily shorted (e.g., has high short interest) suddenly increases in price. That price “squeezes” investors who hold short positions, and they often have to buy the stock at a higher price to pay back their borrowed shares.
GameStop Corp. (NYSE: GME) is one of the most famous examples of a short squeeze. And it serves as a reminder that short squeezes often have little to do with a company’s long-term fundamentals. Sometimes, they have nothing to do with a company’s fundamentals at all.
The GameStop example also highlights that meme and small-cap stocks are often the most heavily shorted stocks. Long-term, buy-and-hold investors often ignore these stocks. But if you’re an active trader with a high risk tolerance, these stocks can make for profitable trades if you believe there’s a bullish case to squeeze the short traders.
Here are three stocks with high short interest that may have catalysts, making them candidates for a short squeeze.
C3.ai Investors Are Fading the Stock at the Wrong Time
At first glance at the C3.ai (NYSE: AI) stock chart, it would appear that the company is a cautionary tale for AI companies. The stock is down 27.5% in 2024 and 33.8% in the last 12 months. Short interest is around 20% of the stock’s float.
The issue is one of expectations. C3.ai is converting from a subscription-based business model to one based on consumption. They are lining up multiple partners, but investors seem to be taking a wait-and-see approach.
The company is not yet profitable, but it continues to increase revenue year over year. However, when it reported earnings in August, the company maintained its current guidance. The market wanted more, even though the company has a history of beating its internal estimates.
You'd be right if this sounds a bit like other technology stocks, such as NVIDIA Corp. (NASDAQ: NVDA). And that’s why C3.ai is a short-squeeze candidate. Analysts have a consensus Hold on the stock, but their price target of $27.70 is 30% higher than the AI stock closing price of $21.30 on September 6, 2024.
RH Is a Proxy for the Consumer
RH (NYSE: RH) is better known to consumers as Restoration Hardware. The company is a premium home furnishings retailer, which makes it a proxy for consumers and real estate stocks.
With the housing market under pressure, it’s not surprising that RH stock was down 14.8% in 2024 and 33.6% in the last 12 months. Short interest in RH stock has increased 15% in the last 30 days and now accounts for over 13% of the entire float.
RH stock soared to over $700 a share in 2021, at the peak of the home renovation mania brought on by the global pandemic. Revenue is back down to 2019 levels. The issue is earnings, which are now negative as the company deals with inflation and interest rates.
The company is taking steps to increase innovation and add operational efficiencies. Ultimately, this is a play on the housing market. If mortgage rates come down meaningfully, you can expect the housing market and RH stock to surge.
Beyond Meat May Not Be Beyond Hope
Beyond Meat Inc. (NASDAQ: BYND) is down 30% in 2024 and 45.7% in the last 12 months. And short interest in BYND stock is a whopping 42%. Even with all of that negative pressure on the stock, the consensus view of analysts’ is that the stock is overvalued and could drop as much as 14.4% from its current price.
If that drop happens, BYND stock will be trading in penny stock territory. That’s a far cry from the stock that closed at over $100 after its initial public offering in May 2019.
Beyond Meat's problem isn’t that its product thesis has changed. Plant-based food continues to garner interest, especially among the coveted Gen-Z market. The issue is competition. The company never had much of a moat to begin with, and now it’s almost non-existent. This is a fundamentally troubled company that is not yet profitable. As a young company, that’s not surprising, but it’s also becoming less likely.
However, the case for BYND stock as a short squeeze candidate is that the company now faces easier year-over-year revenue comparisons. It’s also launching a new whole-muscle steak alternative product that could drive sales and the stock price.