Stock Market

Could Embattled Skillz be Due for a Massive Short Squeeze?

Initially viewed during the new normal as one of the more relevant introductions in the market, online mobile video game platform, Skillz (NYSE:SKLZ) has certainly seen better days. Just on a year-to-date basis alone, SKLZ stock has hemorrhaged 70%. Since its first day of trading, shares are down about 77%, in part reflecting a loss of pertinence as cooped-up residents lose their fear of the coronavirus pandemic.

Fundamentally, the circumstances surrounding SKLZ stock don’t get any better. While revenue growth has been impressive — jumping from $50.8 million in 2018 to $384.1 million in 2021 — net losses have also expanded. At the beginning of the aforementioned period, Skillz posted a net loss of nearly $28 million. By the end of last year, this figure widened out to over $181 million.

Presumably, unless the gaming specialist produces outstanding numbers and a credible turnaround plan, SKLZ stock may have more to drop. Adding to this concern is that the underlying company went public via a reverse merger with a special purpose acquisition company. Unfortunately, the SPAC has become a four-letter word, with post-business combinations greatly lagging the performance of benchmark indices.

So, is it time to give up on SKLZ stock? Arguably, most conservative investors will want to stay away from it due to proven volatility risks. However, another angle exists and that’s the good ole short squeeze.

Just like meme-stock traders capsized the paradigm on Wall Street, it’s possible — though hardly guaranteed — that coordinated trading could launch SKLZ stock, at least temporarily. That’s because some of the short-squeezing statistics look enticing.

According to data from Fintel, the short interest percentage of float is 20.3%, which is up there. Additionally, the days to cover is just under seven days. Typically, you’d like this metric to breach double digits as it essentially reflects how many days bearish traders will need to cover their short exposure. Still, seven is a solid number if you’re looking to squeeze out the opposite side of the trade.

Nevertheless, because so many opportunities are competing for retail investor dollars, don’t buy SKLZ stock on the assumption that a short squeeze will work. Sometimes, people are bearish on a company for good reason.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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