The stock trading realm offers investors an arsenal of tools and strategies, with “shorting” being considered one of the riskiest.
This approach involves borrowing and selling stocks, banking on their decline for profits. Yet, the perilous “short squeeze” looms—a sudden surge in stock prices forcing traders to repurchase at inflated costs.
In this light, Finbold explored two heavily shorted stocks, as of November 16, which have the potential for a short squeeze and subsequent price rally.
Archer Aviation (NYSE: ACHR)
Archer Aviation (NYSE: ACHR), the manufacturer of eVTOL aircraft, has been one of the hottest small-cap stocks in 2023, surging more than 230% year-to-date.
The company’s shares slightly retreated from their August highs of $7.50. However, besides its remarkable ascent, ACHR is also interesting because it has a short interest of more than 29.6%, according to MarketWatch data.
However, the company’s business developments do not reflect this bearish sentiment. Archer expects to commercialize its eVTOL aircraft in 2025 and has already won a major contract from the United States Air Force worth $142 million.
Analysts are also largely bullish on the aircraft maker. Based on 6 analysts who covered the stock in the past three months, ACHR has an average 12-month price target of $9.83, implying an upside of more than 52%.
The consensus analyst rating on the stock is ‘Strong Buy,’ based on 5 analysts who rated it that in the last three months and 1 who recommended a ‘Buy.’
This, coupled with a decent growth outlook for the coming years and its global expansion plans, ACHR could attract the stock market bulls in the coming months and hence stage a short squeeze.
Stem (NYSE: STEM)
Stem Inc., a prominent player in the clean energy sector, also faces substantial short interest, with approximately 27.45% of its float held in short positions.
This prevalence of shorting suggests a prevailing bearish sentiment surrounding the company, further emphasized by its year-to-date decline of approximately 62%.
Despite the skepticism reflected in short positions, Wall Street analysts present a contrasting perspective. The average 12-month price target for STEM stands at $6.91, indicating a potential upside of more than 113% from its current share price.
This optimistic outlook is based on the analysis of 15 industry experts who have closely monitored the stock in recent months.
The consensus among these analysts is a ‘Buy’ rating, supported by a notable 7 ‘Strong Buy’ and 2 ‘Buy’ recommendations.
In contrast, 7 experts suggest a ‘Hold’ position, with only 1 advising a ‘Sell.’
Should the stock approaches the projected target in the coming months, it could exert significant pressure on short sellers. This scenario might force them to repurchase STEM shares at elevated prices, potentially acting as the catalyst for a short squeeze and triggering a notable price rally.
However, it is important to keep in mind that these stocks are still considered high-risk investments. The two companies are yet to establish themselves in their respective industries as leaders, and their success hinges upon a variety of erratic factors.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.