Generally, when the masses – including the market’s heavy hitters – decide to bet against a security, it’s best to avoid it. However, the unique nuances involved with shorting a company opens the door for the contrarian trade. To be sure, so-called short-squeeze stocks to buy are incredibly risky. Yet at the same time, they also present significant upside potential.
When you go long a company, you’re obviously hoping that you can buy low and sell high. However, when you short an enterprise, you’re aiming to sell high so that you can buy low later and profit from the difference. To initiate a pure short position requires first borrowing (setting aside the exception of naked short selling) the target stock from a broker.
That’s where circumstances get interesting. If the underlying security falls in value, a short position can be incredibly lucrative. However, if shares rise, the bearish speculator ends up losing money. Not only that, no upside ceiling exists for any stock. Therefore, it’s critical to cut losses early.
The panic to exit early is what creates the upside pressure undergirding short-squeeze stocks to buy. It’s a risky business but it’s oh so tempting.
Nuvalent (NUVL)
One of the most heavily targeted securities, Nuvalent (NASDAQ:NUVL) falls under the biotechnology sphere. Specifically, it’s a clinical-stage biopharmaceutical firm that engages in the development of therapies for patients with cancer. Notably, NUVL stock has gained 79% in the past 52 weeks. Since making its public market debut, the company gained around 330% of equity value.
That said, skeptics have entered the fray. Presently, NUVL represents one of the most targeted securities, with a short interest of 20.29% of its float. Typically, any magnitude of short interest above 20% is considered to be high. Further, NUVL’s short interest ratio – or the time required to unwind all bearish positions based on average trading volume – stands at 38.89 days to cover.
Based on that information, it seems like bad news for Nuvalent. However, the company could rank among the short-squeeze stocks to buy. Analysts rate NUVL a unanimous strong buy with a $98.80 average price target. That implies a 26% upside potential.
Financially, experts anticipate that in fiscal 2025, sales could hit $$530,000, with a high-side view of $4.8 million. That would be massive as Nuvalent is presently a pre-revenue entity.
Mondee (MOND)
Based in Austin, Texas, Mondee (NASDAQ:MOND) falls under the consumer cyclical sector. Specifically, it provides travel services. The company’s mainline business unit offers airline tickets through its platform. It also provides a Software as a Service (SaaS) model that facilitates corporate travel cost savings solutions. With people prioritizing vacations in the post-pandemic era, MOND stock should attract bullish attention.
However, that hasn’t been the case at all. Since the beginning of the year, MOND slipped 18%. In the past 52 weeks, shares stumbled a staggering 75.5%. Not surprisingly, then, the bears began circling the waters. Short interest comes in at 20.64% of the float. Further, the short-interest ratio stands at 56.17 days to cover.
Still, not all hope is lost, at least for the optimists. Analysts rate Mondee a consensus moderate buy with a $4.18 average price target, implying over 95% upside potential. Further, with the downside, MOND could be priced at a more enticing valuation. Shares trade at 0.69X trailing-year revenue. That’s down from 1.21X in the fourth quarter of last year.
Experts also anticipate 14.8% growth in the top line to $255.09 million in fiscal 2024. So, MOND could be one of the short-squeeze stocks to buy.
Zynex (ZYXI)
Headquartered in Englewood, Colorado, Zynex (NASDAQ:ZYXI) falls under the broader healthcare sector, specifically medical distribution. With its subsidiaries, Zynex designs, manufactures and markets medical devices to treat chronic and acute pain. Its primary focus is in the area of electrical stimulation for rehabilitative purposes. The business sounds incredibly relevant yet the market has other ideas.
Since the start of the year, ZYXI slipped almost 16%. The volatility has been pronounced in the past month, when shares gave up 13% of market value. Zynex has also gone nowhere in the trailing five years, thereby frustrating longtime stakeholders. As a result, the company’s short interest soared to 36.89% of the float. Also, the short-interest ratio jumped to 53.44 days to cover.
Obviously, that’s not a great outcome. However, ZYXI could be one of the short-squeeze stocks to buy. It presently enjoys a consensus view of moderate buy. Also, the price target stands at $18, implying 96% upside potential.
Financially, experts anticipate the company’s sales in fiscal 2024 to rise to $226.95 million. If so, that would imply growth of 23.1%.
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.
