Meme stocks have gotten the bulk of retail investors’ attention this year, skyrocketing in price over a matter of days or weeks. These investors rely mainly on social media, such as Reddit’s Wall Street Bets forum or Twitter (NYSE:TWTR) to synchronize buy orders and encourage other investors to jump on the bandwagon.
So far in 2021, there have been significant gains for a number of meme stocks. But two names, namely AMC Entertainment Holdings (NYSE:AMC) and Gamestop (NYSE:GME), have stayed in the limelight. Year-to-date (YTD), these firms are up about 1,790% and 885% respectively. Such returns are nothing short of spectacular.
Meanwhile, the exchange-traded fund (ETF) space has also been busy. For instance, the VanEck Social Sentiment ETF (NYSEARCA:BUZZ), which started trading in March 2021, counts several meme stocks among its holdings. And so far in 2021, the fund is up 5%.
Similarly in late May, another ETF joined the market with a focus on the “fear of missing out” on meme stock gains. This new fund, called the FOMO ETF (BATS:FOMO) is flat since its inception.
Investors are constantly on the lookout for other companies that could have meme stock potential. One of the metrics they look at is which shares have been shorted the most. InvestorsPlace readers would know that those who short a stock anticipate a future fall in its price.
Such bearish investors initiate short positions on borrowed shares. They aim to buy back that stock at a lower price and thus to profit from the decline in price. Let’s see how several heavily shorted stocks could become meme stocks to buy in October.
Shorting Stocks
There are metrics Wall Street considers when analyzing stocks that have been shorted. First is the number of shares sold short (i.e., short interest).
One of the ways to identify shares that could become meme stocks is to look at the short interest ratio, a mathematical indicator. It shows shares sold short divided by the average daily volume in that stock.
The short interest ratio is also referred to as the days-to-cover ratio. In other words, if short sellers were to begin covering their short position, it would take a certain number of days to buy back these borrowed shares. If that number is 10 or above, there is extreme pessimism surrounding the shares.
Wall Street also pays close attention to short interest as a percentage of float. In general, a percentage above 20% is considered very high. On a side note, float is the number of public shares available for trading a company has on the open market.
Short Squeeze and Meme Stocks
How can investors make sense of these numbers and percentages? A high short interest ratio as a percentage of float signals to the market that if there were a short squeeze, where large buyers came into the stock, a short position on the shares would become untenable.
Recent research by Franklin Allen of Imperial College Business School, U.K., highlights, “In a squeeze, short sellers find it difficult to acquire the securities they need to cover their short position because of a shortage of floating supply and the price rises as a result. A corner is an extreme form of short squeeze, when the buy side has almost complete control of all floating shares.”
Put another way, a short squeeze could lead to immense losses for short sellers if the price were to rise significantly. Understandably, short selling is regarded as a comparatively risky strategy, with theoretically huge losses if the shorted stock increases in price.
With that information, here are seven meme stocks that could have short-squeeze potential in October.
- Big 5 Sporting Goods (NASDAQ:BGFV)
- Blink Charging (NASDAQ:BLNK)
- Corsair Gaming (NASDAQ:CRSR)
- fuboTV (NYSE:FUBO)
- Goodrx (NASDAQ:GDRX)
- Intercept Pharmaceuticals (NASDAQ:ICPT)
- PetMed Express (NASDAQ:PETS)
It is important to remember that there might be solid fundamental reasons why a stock is shorted. Therefore not all shorts will necessarily become short-squeeze candidates. Or even if they do, the price of a meme stock could fall as fast as it goes up.
Meme Stocks: Big 5 Sporting Goods (BGFV)
52-week range: $5.68 — $37.75
Dividend Yield: 3.86%
Short Interest Ratio/Days to Cover: 5.9
Short Percent of Float: 45.27%
Our first stock is the El Segundo, California-based sporting goods retailer Big 5 Sporting Goods. This group operates about 400 stores in a dozen western states.
In early August, the retailer issued robust Q2 metrics. Sales came at $326.0 million, compared to $227.9 million a year ago. Net income of $36.8 million translated into earnings of $1.63 per diluted share. A year ago, these metrics had been $11.1 million, or 52 cents per diluted share. Investors were pleased to see that the gross margin went up from 31.7% to 38.9%.
YTD, the stock is up over 150% and hit a multi-year high of $37.75 in early June. It now hovers at $26. A new attempt at that level is likely in the weeks ahead. Price-to-sales (P/S) ratio is 0.48x.
Blink Charging (BLNK)
52-week range: $7.33 — $64.50
Short Interest Ratio/Days to Cover: 7.8
Short Percent of Float: 35.79%
Our next company is Blink Charging which operates around 25,000 electric vehicle (EV) charging stations stateside. In May, the company also acquired Belgium-based Blue Corner, with “its portfolio of 7,071 charging ports and a robust European charging network.”
On August 12, Blink Charging issued Q2 results. Revenue increased 177% year-over-year (YOY) and came at $4.4 million. Net loss of $13.5 million translated into a loss of 32 cents per basic and diluted share.
Investors have been pleased by the agreement with General Motors (NYSE:GM), wherein Blink will “offer GM EV customers more seamless access to publicly available Blink EV charging sites across the U.S. as part of GM’s Ultium Charge 360.”
In June, the company was added to the Russell 2000 Index. YTD, the shares are down about 33% after seeing a record high of $64.50 in late January. Now BLNK shares are trading around $29 with a P/S ratio of 108.32.
Corsair Gaming (CRSR)
52-week range: $17.45 — $51.37
Short Interest Ratio/Days to Cover: 3.4
Short Percent of Float: 31.56%
Gaming hardware and computer peripherals stock Corsair Gaming is the next name on our list. CRSR went public a year ago in September 2020 at an opening price of $15.12.
Corsair issued Q2 metrics on August 3. Revenue was $472.9 million, up 24.3% YOY. The company reports revenue in two main segments:
- Gamer and creator peripherals segment (revenue was $155.2 million, up 40.9% YOY);
- Gaming components and systems segment (revenue was $317.7 million, up 17.6% YOY).
Adjusted net income was $35.7 million, or 36 cents per diluted share. A year ago, the metrics had been $32.3 million and 37 cents per diluted share. Looking forward, management expects revenue for FY21 to be between $1.9-$2.1 billion.
YTD, the stock is down about 23%. It hit an all-time high of $51.37 in shortly after going public in November 2020. Now CRSR stock is around $26. Forward price-to-earnings (P/E) and P/S ratios are 16.67x and 1.28x.
fuboTV (FUBO)
52-week range: $8.72 — $62.29
Short Interest Ratio/Days to Cover: 3
Short Percent of Float: 19.96%
Live TV streaming stock FuboTV provides subscribers access to live sports events as well as news and entertainment content. Since going public in October 2020, FuboTV has received investors’ attention with its “sports first” positioning.
The company announced Q2 metrics in mid-August. Revenue almost tripled to reach $131 million. While adjusted net loss stood at $51.3 million, adjusted loss per share declined to 38 cents. The Street regarded this number as a big improvement from the loss of $1.46 a year ago. During the quarter, monthly ad revenue per user was $8.70.
FUBO stock, which hovers around the $23 mark, is down 10% YTD. In December 2020, it hit a record high of $62.29.
Goodrx Holdings (GDRX)
52-week range: $26.66 — $64.22
Short Interest Ratio/Days to Cover: 9.5
Short Percent of Float: 26.53%
Santa Monica, California based GoodRx is well known among consumers looking for deals on prescription drug purchases. The price comparison platform helps shoppers save money on medication. GoodRx became public in September 2020.
For consumers, the services are free. Thus, GoodRx relies on revenues from advertisements on the site (about 20% sales) and a percentage fee earned from the use of coupons at pharmacies (about 80% of sales).
Around 70,000 pharmacies accept coupons from GoodRx. In recent months, it also began offering telehealth services, and the GoodRx app has since become one of the most downloaded health apps.
According to Q2 results issued on August 12, revenue was $176.6 million, up 43% YOY. Adjusted net income came at $35.1 million. Earnings per share (EPS) was 8 cents. Management expect Q3 revenue to come between $193 and $197 million.
During the quarter, the platform’s total monthly active users was over 6 million consumers. A year ago, that number had been 4.4 million.
YTD, GDRX shares are up 66%. Following the IPO, the stock hit a record of $64.22. But now, it is just over $40.
Intercept Pharmaceuticals (ICPT)
52-week range: $11.60 — $43.16
Short Interest Ratio / Days to Cover: 9.3
Short Percent of Float: 28.28%
Small-cap biotech name Intercept Pharmaceuticals is our next stock. The company’s focus is treating progressive non-viral liver diseases. Currently its Ocaliva drug is used to treat adults with primary biliary cholangitis (PBC), a liver disease.
Intercept issued Q2 metrics in late July. Net revenue was $96.6 million, compared to $77.2 million a year ago. Net loss of $11.1 million declined from the net loss of $63.3 million in Q2 2020. For FY21, the biopharma group expects worldwide Ocaliva net sales to come between $325 million and $340 million.
So far in the year, ICPT stock is down over 35%. In October 2020, it hit a 52-week high of $43,16. Now its stock is around $16. P/S ratio is 1.56x, a low valuation for a biotech company.
PetMed Express (PETS)
52-week range: $24.75 — $57.00
Dividend Yield: 4.43%
Short Interest Ratio/Days to Cover: 10.6
Short Percent of Float: 24.88%
We conclude our discussion with the online pet pharmacy PetMed Express. It provides pet medications as well as other health products for animals and pet food. Many of our reads are likely to recognize 1-800-PetMeds, its toll free customer number.
In late July, PetMed Express issued Q2 results. Net sales were $79.3 million, compared to $96.2 million a year ago. However, it was flat versus the quarter ended June 30, 2019, before the pandemic.
Net income of $4.4 million translated into 22 cents diluted per shares. A year ago, those metrics had been $7.8 million and 39 cents. Investors noted that as our economy opened up for businesses, pet owners started visiting their veterinarian clinics and retail stores in person. As a result, sales over the online pharmacy business declined.
So far in the year, PETS stock is down 16%. It saw a multi-year high of $57 on late January, but is now hovering at $27.5. Forward P/E and P/S ratios stand at 19.97x and 1.87x.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.