The meme stock rally may have fizzled out, but GameStop has once again captured the attention of short sellers. As of mid-May, GameStop emerged as a favorite among short sellers, with short interest surging by 6% to more than 68 million shares, representing over 25% of its float. This resurgence came on the heels of “Roaring Kitty” resurfacing online after a three-year hiatus, leading to a significant boost in GameStop’s share price. The stock has skyrocketed by more than 92% in the past month, fueling concerns of a potential short squeeze.
Short selling is a high-risk strategy employed by hedge funds and, at times, retail investors, to profit from a decline in a stock’s price. In short selling, investors borrow shares of a stock and sell them with the intention of buying them back at a lower price in the future. If the stock price rises instead, short sellers are forced to cover their positions by purchasing shares at a higher price, leading to potential losses. This dynamic can trigger a short squeeze, where a surge in the stock price forces short sellers to buy back shares to limit their losses.
CNBC Pro, using FactSet data, identified several companies on the New York Stock Exchange and Nasdaq with short interest as a percentage of float exceeding 25% and a market capitalization of at least $1 billion. Among them is Symbotic, a warehouse automation company, with a short interest of around 30% of its float. While Symbotic’s shares have declined year-to-date, analysts remain bullish on the stock, with a majority rating it a buy or strong buy, anticipating a 37.2% upside potential.
Electric vehicle manufacturer Lucid also made the list, with approximately 29% of its float being sold short. Despite this, Lucid’s shares have seen positive momentum in May, climbing over 8% for the month. Analyst sentiment on Lucid, however, remains subdued, with a significant portion rating the stock as a hold, signaling caution among investors.
Retailer Kohl’s is another potential target for a short squeeze, with nearly 34% of its float being sold short. The company is set to report its fiscal first-quarter earnings soon, following a disappointing performance in the previous quarter. While the stock has rebounded over the past month, concerns remain regarding its future earnings guidance and market performance.
The resurgence of short interest in stocks like GameStop, Symbotic, Lucid, and Kohl’s signals ongoing volatility and potential opportunities for short squeezes in the market. Investors should exercise caution and conduct thorough research before engaging in short selling or trading volatile stocks with high short interest percentages. Sustainability and long-term prospects should outweigh short-term speculation in navigating such market dynamics.