What are we looking for?
U.S.-listed stocks that could see their share price rise from a short squeeze.
Short-selling has been brought to the forefront of financial markets in recent weeks, with companies such as GameStop Corp. seeing their share price increase by more than 2,000 per cent in mere weeks. The rapid rise and fall in the share price of GameStop was mostly because of a short squeeze. This occurs when investors who are shorting a stock (betting that the share price will decline) are forced by rising prices to cover their short positions prematurely by repurchasing stock, thus driving the share price up even higher. While the elevated prices are typically not sustainable (as demonstrated by the continued retreat in the share price of GameStop on Tuesday), these phenomena do offer investors with a high risk tolerance the opportunity to participate in market rallies. Today, we screen for companies that are poised for a short squeeze.
- First, we screen for U.S.-listed companies with a market capitalization greater than US$1-billion.
- Second, we screen for companies with an unusually large number of shares sold short. We use the short interest percentage, defined as the number of shares sold short as a percentage of the total float, to screen for companies with more than 40 per cent of their shares sold short.
- Last, we screen for companies that are prime candidates for a short squeeze. We use the StarMine Short Squeeze Indicator to screen for companies with a score greater than 90. The Short Squeeze Indicator score is a percentile rank of a security versus all other U.S.-traded stocks based on volatility and liquidity. A score of 90, for example, would indicate that only 10 per cent of all U.S. stocks have a higher likelihood of a significant relative price rise in the next 30 days.
More about Refinitiv
Refinitiv is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.
What we found
The screen, ranked by the StarMine Short Squeeze Indicator, produced six companies across three sectors. Let’s look at two of the companies.
FuboTV Inc., which ranked second in the StarMine Short Squeeze Indicator with a score of 98, is a sports-first live television streaming platform. FuboTV’s share price increased by more than 350 per cent over the past 12 months, while also seeing the short interest on the stock rise to 58 per cent of the float, third-highest of the companies in the screen. The recent volatility in FuboTV appears to be driven largely by the influx of retail investors targeting heavily shorted stocks, and less to do with company fundamentals. Despite this, the outlook for FuboTV appears optimistic as the company expands into sports betting with the acquisition of Vigtory, a sportsbook platform with a strong management team.
Bed Bath & Beyond Inc. scored third in the StarMine Short Squeeze Indicator with a score of 97, and second in short interest with 62 per cent of the shares sold short. The company, which operates a chain of retail stores across North America, saw its shares rise to more than US$52 on Jan. 27 before falling by roughly 50 per cent over the next eight trading days. Bed Bath & Beyond has faced challenges because of the global pandemic, most notably decreasing foot traffic in its retail stores. The company has plans to reduce its retail footprint by about 200 locations, which should help reduce costs, but it remains unclear whether this will be enough to compete with online-only retailers. Management has also been looking to streamline costs across its supply chain, while also exploring private label products that could help boost profit margins.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a customer success leader, Refinitiv buy-side and commodities trading for the Americas.
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