Short-squeeze stocks have seen an explosion in interest after the recent Roaring Kitty saga that sent many meme stocks soaring to dizzying heights. Now, before we dive in, I would like to mention that meme stocks are something that are generally best avoided, like the plague.
Yes, certain meme stocks did surge, but the chance of actually timing any sort of investment correctly is slim to none. Not only that, but most of the mania is short-lived. Thus, you would have to sell at the precise right time to make the most of any rally. And that’s a near-impossible feat for retail investors. In fact, retail investors lost billions in just the past week alone as meme stocks came crashing back down to earth.
However, that doesn’t mean you should avoid short-squeeze plays altogether. In my opinion, you can make some sensible bets that aren’t excessively high-risk and provide some asymmetric upside. These stocks are still risky, but at least they aren’t perpetually decline. Furthermore, it’s possible their underlying businesses can likely survive even if a short squeeze doesn’t materialize. Here are three such short-squeeze stocks to consider right now.
Upstart (UPST)
Upstart’s (NASDAQ:UPST) recent Q1 results show the company is navigating current economic challenges with foresight and flexibility. While revenue of $127.8 million was $2.71 million above estimates (and rose 24.2% year-over-year), the company’s earnings per share also beat estimates by 20%. Still, consumers are simply borrowing less, and it’s having a big impact on Upstart. Banks are a lot more cautious when partnering up with Upstart, as they’d rather play it safe than experiment with AI technology. That said, I see a bright future ahead once interest rate cuts begin, and lending volume increases.
I’m encouraged by the steps management is proactively taking to cut costs responsibly, including reducing annual personnel expenses by $20 million and computing costs by 23%.
The launch of personal loans secured by automobiles in seven states should help more qualified borrowers access loans at lower rates. With ASPL rates 20% lower on average than alternatives, this product seems well-positioned to meet the affordability needs of consumers. Plus, funding is improving on Upstart’s platform for banks, credit unions, and other financial backers.
However, with consumer credit risk and interest rates remaining high for now, loan volumes will likely stay restrained in the short term. Upstart is wisely scaling back non-research uses of its own funds for new loans during this period of uncertainty. I think it is only a matter of time before UPST stock heads higher once interest rate cuts start. Some big quarterly beats should cause a short squeeze, considering the stock’s current short interest sits at 32.2%. This is definitely one of the top short-squeeze stocks to buy, in my books.
iRobot (IRBT)
iRobot (NASDAQ:IRBT) has been one of the worst-performing stocks in the market this year, and over a longer-term time horizon. The Roomba company is down 94% from its peak, but I see promising trends emerging. T
he company’s Q1 results exceeded what analysts had predicted. Total revenue of $150 million surpassed estimates by over $5 million, though sales were still 6.4% lower than the previous year. The company’s aggressive restructuring efforts seem to be paying off, with operating losses shrinking to $40 million. Notably, iRobot also beat earnings per share estimates by nearly 24%. If this number continues to improve faster than analysts think, the upside potential with IRBT stock could be huge.
Those who have bet against the stock might be in trouble. The company is getting $94 million in termination fees from Amazon (NASDAQ:AMZN). This alone is nearly a third of IRBT’s entire market cap.
Furthermore, the short interest in this name is above 30%, so any positive news could trigger a rush by short sellers to cover their bets. The appointment of turnaround expert Gary Cohen as the new CEO may provide that catalyst.
Regardless, iRobot still faces strong headwinds. Gross profit margins of 24.6% remain squeezed due to intense competition and weaker consumer spending on home appliances. While management is wisely focusing on cost-cutting, making operations more efficient, and participating in the more affordable product segment, a true recovery will depend on growth resuming on the top line. When that will happen remains uncertain, hence the high short interest.
Guess? (GES)
Guess? (NYSE:GES) is among the most aggressively-shorted stocks in the market right now. The company sports a short interest ratio of 32.4%, which is quite surprising since this company just had an incredible quarter. Additionally, I believe the company’s stock could climb much higher.
Revenues grew 9% year-over-year to $891 million, surpassing estimates by more than $36 million. Even more impressively, adjusted earnings per share of $2.01 far exceeded expectations by 44 cents.
Management highlighted that all five of their business divisions increased revenues, with Americas Wholesale, Asia, Licensing, and Europe leading the way. Despite ongoing supply chain challenges, Guess? also finished out the year with inventory down a healthy 9%.
With the stock still trading at a reasonable price relative to earnings, the exceptional results of the fourth quarter sets the stage for a potential short squeeze. If this momentum continues, those who have bet against the stock may feel forced to cover their positions.
The company’s recently-announced special dividend of $2.25 per share simply adds another catalyst to the list. Currently, GES stock provides a dividend yield of 4.84%, and unsurprisingly, analysts are bullish on this name.
On the date of publication, Omor Ibne Ehsan did not hold (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.