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Let’s talk about short-squeeze stocks. These are the kind of stocks that can turn Wall Street power plays on their head – a rapid and unexpected surge in share price that leaves short sellers hemorrhaging money. As the saying goes, when these stocks take off, the shorts are left holding the bag, and we can’t help but savor every moment of it.
So, what makes short-squeeze stocks so enticing for investors? Take Tesla (NASDAQ:TSLA) as an example. In late 2019, TSLA had an 18% short interest. Fast forward, and TSLA stock quadrupled, leaving short sellers nursing billions in losses. It’s a tale that never gets old. With numbers like those, it’s no wonder so many investors are drawn to these high-stakes plays.
But, a word of caution. Not every short-squeeze play pans out as expected. Reflect on AMC Entertainment (NYSE:AMC) – the theater chain has faced its fair share of headwinds, leaving investors in penny-stock purgatory. This goes to show that even the most promising short-squeeze stocks can go awry.
That said, how do we identify the short-squeeze stocks that are truly worth betting on? Simple. Look for a potent blend of high short interest, a snug float, and a solid business model fueling profitability. With these factors in mind, here’s a trio of short-squeeze stocks that could set your February ablaze.
Rise of the Unlikely Contender: B. Riley Financial (RILY)
According to MarketWatch data from the end of January, B. Riley Financial (NASDAQ:RILY) was the third-most shorted U.S.-listed stock with a short interest of 10.38 million shares, accounting for a whopping 62.82% of its float. Surprising, isn’t it? This Los Angeles-based investment bank has been far from typical, thanks to its association with Brian Kahn, the CEO of Franchise Group, adding a riveting subplot to its narrative.
The company made waves by backing the management-led buyout of Franchise Group, a move that has sparked controversy following allegations of fraud and conspiracies involving high-profile figures. Despite the turmoil, B. Riley managed to maintain a profitable journey, raking in an operating income of $186.8 million and $1.63 billion in revenue in the last 12 months. Yet, it suffered a $75.8 million loss in the third quarter, owing to unrealized losses in its equities portfolio, including the investment in Franchise Group.
A scent of blood lingers in the air as short sellers circle around B. Riley, but if they’ve misjudged its resilience, a short squeeze of epic proportions could be in the making.
Canada Goose (GOOS): A Wild Card Bet on Redemption
Canada Goose (NYSE:GOOS) may have stumbled in recent years, with its stock losing 37% over the past year and a sobering 75% over the last five years. However, a 31.03% short interest of 15.52 million shares, combined with a promising earnings report, hints at a potential upheaval. In its Q3 2024 results, the company showcased both triumphs and tribulations. While total revenue surged 5%, direct-to-consumer sales witnessed a robust 14% growth year-over-year, making a compelling case for recovery. Although hurdles remain, with a sharp decline in its wholesale revenues and adjusted earnings per share, signs of revival are evident, particularly with Asia Pacific emerging as a beacon of hope.
Despite GOOS leveraging an earnings multiple of 19.7x, its recent performance offers more than a glimmer of promise, and given the right catalyst, it could well be on track to reclaim its lost glory.
Lovesac (LOVE): A Cautionary Tale on the Edge
Lovesac (NASDAQ:LOVE) may have incurred the wrath of short sellers with a sizable short interest of 3.75 million shares, representing 28.21% of its float. The furniture maker’s roller-coaster performance, punctuated by unpredictable profitability, has cast a shadow over its prospects, reflected in its mercurial stock trajectory since its IPO. Despite posting a 9.0% rise in revenue for the first nine months of 2024, its meager 1.3% EBITDA margin and shadow of legal disputes have clouded its path to redemption. However, as its inventory dwindles while sales ascend, and concerns over past restatements diminish, there’s hope yet for LOVE.
It is a tale of uncertainty, but with the inevitable ebb and flow that characterizes LOVE, the odds coalesce into a story of potential resurgence, albeit not without its share of pitfalls.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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