Trading heavily shorted stocks can be a profitable strategy. That’s because to short a stock, a trader has to borrow it first and then sell it on the market, hoping to profit as the stock price goes down. If the stock starts going up, it will likely force the ‘shorts’ to buy back and cover their positions. This is known as a short squeeze and often pushes the stock price beyond real valuation.
Because the interest for shorted stocks remains, Finbold analyzed the most shorted stocks this year and selected the two with a high potential to soar.
Enovix (NASDAQ: ENVX)
Enovix Corporation is a silicon battery company that designs, develops, and manufactures silicon-anode lithium-ion batteries using a 3D cell architecture. Its batteries are used on wearables, mobile devices, laptops, and augmented reality eyewear.
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The company stock is among the top 10 most shorted, with 28% of float.
Meanwhile, Morningstar’s quantitative equity report has put a fair value estimate at $23.76 for ENVX. That’s 71% above the current market price of $13.89. If ENVX reaches Morningstar’s target price, it is likely to start the short squeeze.
ChargePoint (NYSE: CHPT)
ChargePoint Holdings is an electric vehicle charging technology solutions provider. The company sells charging hardware connected through cloud-based software to customers to enable charging station owners to manage their network of charging systems.
The company shares are shorted 24.79% of the float. This percentage is similar to what we had throughout the whole year.
ChargePoint’s next earnings release is on September 6, 2023, which could provide some clues about where the stock price may go next. Analysts expect the company to post earnings of -$0.14 per share, a 26.32% year-over-year growth.
Morningstar’s quantitative equity report puts a $11 fair value on the stock price, which is 55% above the current market price of $7.07.
Shorting the stock has had a negative effect on ChargePoint as it’s down 22% year to date. Enovix, on the other hand, has proven more resilient, being up 14% during the same period. Both have underperformed the S&P 500’s 16% return, though.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
