This tactical approach involves the borrowing of stocks, selling them, and banking on their subsequent decline in value to yield profits. However, this maneuver introduces a precarious scenario, commonly referred to as a ‘short squeeze,’ where unforeseen surges in stock prices compel traders to repurchase the shares at elevated costs, potentially igniting significant price spikes.
Navigating this intricate landscape, Finbold has undertaken a comprehensive analysis of heavily shorted stocks as of November 2. In doing so, they’ve identified two particular stocks that have the potential to experience a short squeeze and stage a price rally.
Stem (NYSE: STEM)
Among the most shorted US-listed stocks is Stem Inc., a company that provides clean energy solutions and services.
Nearly a third of the company’s float, or 29.62%, is currently being shorted by the market, according to MarketWatch data. This points to a largely bearish investor sentiment toward the stock, which is reflected by its year-to-date decline of around 63%.
At the same time, Wall Street is not as pessimistic about the clean energy solution developer. Notably, the average 12-month price target on STEM currently sits at $8.39, implying a potential upside of more than 153%. The price objective is based on 16 analysts who covered the stock in recent months.
Furthermore, the consensus analyst rating on the company’s shares is ‘Buy,’ based on 8 ‘Strong Buy,’ recommendations, and 1 ‘Buy.’ Meanwhile, 7 experts are advising a ‘Hold,’ while only 2 think it’s a ‘Sell.’
Should the company’s stock price approach the 12-month projections outlined by analysts, it may exert pressure on those who have engaged in short selling, forcing them to repurchase STEM shares at elevated prices. This, in turn, could serve as the catalyst for a short squeeze.
Enovix Corporation (NASDAQ: ENVX)
Enovix Corporation (NASDAQ: ENVX), a publicly-listed company that manufactures silicon batteries using a 3D cell architecture, is also among stocks that are attracting significant short interest.
In particular, 30.45%, or more than 39 million ENVX shares, are being shorted by investors at the moment, representing a substantial portion. Like STEM, Enovix is also deeply in the red territory this year, falling over 27% since January 1.
Interestingly, analysts who covered ENVX in the past three months are remarkably bullish on the company. The consensus 12-month price target on the stock is $30.33, based on 12 strategists who offered their views on Enovix. This price estimate is 235% higher than Enovix’s current share price.
The average rating on the stock is ‘Strong Buy,’ based on 11 analysts who issued that grade for ENVX, while just 1 advised a ‘Hold.’
If the firm’s fortunes turn for the better and it attracts the attention of stock market bulls, it would put short sellers in an unfavorable position, increasing the potential of a short squeeze happening.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.