Because they have a substantial percentage of their float shorted, such stocks are prone to experiencing the so-called ‘short squeeze.’ This phenomenon happens when stocks with high short interest witness a rush by traders to cover their positions, leading to an abrupt increase in demand and prices.
That said, we delved into the stock market on October 10 and identified 2 stocks that have the potential to undergo a short squeeze and possibly see a massive turnaround.
Allogene Therapeutics (NASDAQ: ALLO) is a biotechnology firm dedicated to advancing the frontier of allogeneic chimeric antigen receptor T cell therapies for combatting cancer.
Meanwhile, ALLO is one of the most shorted stocks listed on the US exchanges. Notably, around 31.5% of the company’s float (33,416,055 shares) is currently being shorted by investors, according to MarketWatch data.
The company has witnessed a difficult year in the stock market, declining more than 52% since January 1.
However, despite short interest and bad performance, analysts’ ratings on the stock remain largely bullish. To be more specific, ALLO has an average 12-month price target of $16.60, based on price objectives offered by 15 analysts.
That price target is nearly 460% higher than the company’s current share price of $2.97.
Additionally, 18 strategists who covered the stock in the past 3 months gave it a consensus rating of a ‘Strong Buy.’ This is based on 14 strategists rating the stock as a ‘Strong buy,’ 1 seeing it as a ‘Buy,’ while 3 recommended a ‘Hold.’
If ALLO manages to realize the potential anticipated by analysts and experiences a significant price increase while maintaining a high level of short interest, it would substantially raise the likelihood of a short squeeze occurring.
Another stock that is currently experiencing significant short interest is Eos Energy Enterprises (NASDAQ: EOSE) – a company that manufactures zinc-based energy storage solutions for utility, commercial and industrial, and microgrid markets.
According to MarketWatch, 30.43% of EOSE’s float is shorted at the moment, amounting to more than 39 million shares. The considerable short interest in Eos Energy is despite the company’s impressive performance, with its stock price surging over 38% year-to-date.
This is also reflected in analysts’ views. Notably, 5 strategists who offered their forecasts for EOSE recently gave the stock an average 1-year price target of $11.40, implying an upside of more than 456% from its current price of $2.05.
Furthermore, over the past 3 months, 4 analysts covered the stock with a ‘Strong Buy’ rating, while 2 advised a ‘Hold.’ No analysts said EOSE is a ‘Sell,’ giving the stock an average rating of a ‘Buy.’
Seeing that analysts see the stock’s fair value as substantially higher than its current price, a notable upswing in EOSE would force those who shorted the stock to buy it to cover their positions, leading to a potential short squeeze.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.