To short a stock, traders need to borrow it first and then sell it. Once a stock that is heavily shorted starts to climb, it forces short sellers to buy back the stock and return the shares to the lender. 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 on August 29 and selected the two with a high potential to soar.
Edible Garden AG Inc. (NASDAQ: EDBL)
Edible Garden Incorporated is a controlled environment agriculture farming company. It uses traditional greenhouse structures like grass greenhouses with hydroponic and vertical greenhouses to grow organic herbs and lettuce. The company grows its plants without soil and uses a closed-loop system where it cycles water back into the system collected via reverse osmosis.
Its shares are the most shorted at 47.66% float, based on August data. A small short squeeze happened on August 10 when the share price made almost 90% gains in one day. This was caused by better-than-expected Q2 results, where Edible reported a loss of $0.24 per share vs. a $0.90 estimate. For comparison, losses per share were $20.40 for the same period last year.
Meanwhile, Morningstar’s quantitative equity report has put a fair value estimate at $3.20 for EDBL. That’s 160% above the current market price of $1.23. Getting the price to this level is likely to start the short squeeze.
Kenvue Inc (NYSE: KVUE)
Kenvue is a consumer health company, formerly part of Johnson & Johnson, that operates through three segments: self-care, skin health and beauty, and essential health. The product lines across all three segments include cold, cough, and allergy products, pain care, digestive health, oral care, and more. Its most popular products are Aveeno, Band-Aid, Benadryl, Listerine, Mylanta, Neutrogena, Tylenol, and Visine.
The company shares are shorted 47.65% of the float. This is the second most shorted stock as of August data.
Morningstar’s quantitative equity report puts a $27.50 fair value on the stock price, which is 19% above the current market price of $22.97.
KVUE is down 24% year to date, while EDBL is down 82% during the same period. The S&P 500’s 16% return has outperformed both.
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