Ranking among the most speculative practices in the equities arena, deliberately bidding up short-interest stocks may generate wildly robust gains. At the same time, higher risks for the intrepid market participant also signifies substantial risks.
Fundamentally, triggering emotions of panic undergird short-squeeze stocks. When bearish traders “attack” a security, they aim to profit from their value erosion. However, if the underlying security rises in value, they lose. Because no upside ceiling theoretically exists, the bears may incur unlimited liability. Thus, they’re incentivized to close out their short positions before circumstances become untenable.
Still, if you target stocks with high short interest, you’re also taking a massive risk. Essentially, most traders operate under a rational capitalist code. In other words, companies attract bearish attention for a reason and usually not a good one. At any point, negative trends may materialize, leaving contrarians holding the bag.
Still, if you want to participate in this treacherous activity, these ideas below might represent worthwhile stocks to buy.
Aravive (ARAV)
Based in Houston, Texas, Aravive (NASDAQ:ARAV) aims to develop transformative targeted cancer therapeutics. Since the start of this year, ARAV gained over 26% of equity value. In the past 365 days, shares gained nearly 54%. Still, in the trailing month, ARAV lost nearly 10%. And on May 10, Aravive reported a quarterly loss of 22 cents, which while beating the consensus target might not have impressed longtime stakeholders.
Whatever the cause, the bears see a cynical “negative” opportunity in ARAV stock. Currently, according to data from Benzinga, its short interest is 82.88%, which is extremely elevated. Further, its short interest ratio hits 13.6 days to cover, which is likewise significant.
To be fair, Aravive’s financials presently offer an ugly canvas. Amid a distressingly horrible Altman Z-Score of 28.89 below zero (thus indicating severe bankruptcy risk), Aravive incurs negative revenue growth and net margin. Still, Wall Street analysts peg ARAV a unanimous strong buy. Their average price target lands at $13, implying almost 698% upside potential. For extreme contrarians, ARAV is one of the short-interest stocks to buy.
World Wrestling Entertainment (WWE)
A professional wrestling promotion, World Wrestling Entertainment (NYSE:WWE) attracts plenty of attention because of Endeavor agreeing to buy out the company. Notably, Endeavor owns the cage-fighting league UFC. Since the start of the year, WWE skyrocketed to the tune of over 47%. In the past 365 days, it’s up nearly 68%. Still, the bears probably believe the enthusiasm has gone on for too long.
According to Benzinga, WWE sports a short interest of 73.08% of its float. Also, its short interest ratio clocks in at 8.3 days to cover. Just looking at WWE alone, its financials don’t seem too bad. For example, its Altman Z-Score hits 7.91, indicating high fiscal stability. Also, its three-year revenue growth rate pings at 11.2%. However, WWE seems grossly overvalued, trading at a forward multiple of 35.82. Nevertheless, analysts peg WWE a consensus moderate buy. Their average price target comes in at $121.33, implying over 20% upside potential. Therefore, it could be one of the short-squeeze stocks to buy.
Revolve Group (RVLV)
A much more classic case of short-interest stocks, Revolve Group (NYSE:RVLV) bills itself as a home to the world’s most-coveted designer apparel, shoes and accessories. Not being a fashionista myself, I’m going to have to take management’s word for it. However, the market clearly isn’t impressed. Since the Jan. opener, RVLV stock slipped over 22%. In the past one-year period, shares gave up over 35% of equity value.
However, if you want to target stocks with high short interest, Revolve offers contrarian appeal. Per Benzinga, RVLV’s short interest is 49.7% of its float. Also, its short interest ratio comes in at 8.7 days to cover. Financially, Revolve offers metrics that indicate stability. Most notably, it enjoys a strong cash position relative to debt. Also, its Altman Z-Score hits 6.68. However, the flaw centers on its three-year revenue growth rate dropping to 42.5% below zero.
Despite the crimson stains, analysts peg RVLV a moderate buy. Their price target pings at $24, implying 37% upside potential. Thus, it’s one of the short-interest stocks for speculators to put on their radar.
Allogene Therapeutics (ALLO)
Based in San Francisco, California, Allogene Therapeutics (NASDAQ:ALLO) claims to harness the spirit of cooperation to revolutionize cancer treatment. Fundamentally, it attracts positive attention because of its multiplex gene-engineering and gene-editing capabilities. Since the beginning of this year, ALLO moved up over 6%. However, in the trailing one-year period, ALLO slipped nearly 16%. Still, ALLO ranks among the short-interest stocks as the bears see negative opportunities. According to Benzinga, ALLO’s short interest hits 44.25% of its float. Also, its short interest ratio is 19.3 days to cover.
From investment resource Gurufocus, Allogene suffers from three red flags. In particular, its Altman Z-Score sits at 0.09, indicting distress and bankruptcy risk in the next two years. Also, ALLO appears significantly overvalued relative to several key financial metrics. Yet ALLO rides a wall of worries because analysts peg shares a consensus strong buy. Not only that, their average price target stands at a whopping $18.54, implying 203% upside potential.
Galectin Therapeutics (GALT)
On surface level, Galectin Therapeutics (NASDAQ:GALT) might not seem a reasonable candidate for short-interest stocks to buy. A biotechnology firm, Galectin aims to provide alternative solutions for non-alcoholic steatohepatitis (NASH) cirrhosis. Further, investors love GALT. Since the start of the year, shares moved up almost 42%. In the trailing one-year period, they’ve gained over 30%.
Still, GALT is a volatile opportunity. In the past month, it stumbled nearly 16%. Therefore, contrarians looking to target stocks with high short interest have come to the right place. Per Benzinga, GALT’s short interest clocks in at 37.9% of its float. Its short interest ratio stands at a staggering 28.4 days to cover. Frankly, the balance sheet is problematic. Galectin’s cash-to-debt ratio sits at 0.47, worse than 87.88% of companies listed in the biotech sphere. Despite the troubles, H.C. Wainwright’s Ed Arce pegs GALT a buy. The expert’s price target lands at $11, implying nearly 559% upside potential.
Cinemark (CNK)
A cineplex operator, Cinemark (NYSE:CNK) doesn’t initially seem an ideal candidate for short-squeeze stocks. Since the Jan. opener, CNK soared into low-earth orbit with a near-104% performance. To be fair, the trailing-year performance is much more modest at 10% up. Nevertheless, with the Covid-19 headwind fading dramatically, CNK may continue to build momentum.
However, CNK still ranks among the short-interest stocks. Per Benzinga, its short interest hit 37.9% of its float while its short interest ratio reached 10.1 days to cover. Financially, Gurufocus warns that Cinemark might be a possible value trap. However, metrics such as a three-year revenue growth rate of 9.6% below zero can be explained because of the devastation of the pandemic. Still, the company does get weighed down with poor stability in the balance sheet, particularly from its high debt load.
That said, analysts peg CNK as a moderate buy. Their average price target clocks in at $19.20, implying nearly 12% upside potential.
Arcutis Biotherapeutics (ARQT)
Another classic case of short-interest stocks, Arcutis Biotherapeutics (NASDAQ:ARQT) on paper seems incredibly relevant. Leveraging advanced innovations in the field of dermatology, Arcutis seeks meaningful advances in the treatment of immune-mediated skin diseases. Because such conditions may impact issues involving social integration and acceptance, Arcutis plays a critical role in an underserved field.
Unfortunately, the market doesn’t seem to care. Since the Jan. opener, ARQT fell more than 32%. In the trailing one-year period, shares stumbled nearly 49%. Sure enough, ARQT became one of the candidates for short-squeeze stocks with a short interest of 36.9% of its float. Also, its short interest ratio printed 13.4 days to cover. In fairness, Arcutis struggles with less-than-desirable metrics in its financials. For example, its Altman Z-Score sits at 3.02 below zero, indicating significant distress.
Despite obvious concerns, analysts peg ARQT a unanimous strong buy. Their average price target stands at $44.71, implying nearly 347% upside potential.
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.
