Short squeeze stocks rally as a quick money-making mechanism came into the limelight during the meme stock euphoria of 2021. Investors targeted stocks that had high short interest as a percentage of free-float. The initial rally was exaggerated by a short-covering rally and speculative stocks skyrocketed.
Of course, the markets are nowhere near the euphoria of 2021. However, there are stocks poised for a short squeeze rally considering the short interest and the business fundamentals. As a strategy, it makes sense to invest in a few stocks with high short interest.
This column discusses three short-squeeze stocks that look poised for a 100% rally at the blink of an eye. I must caution that investors should not go overboard on this strategy. Further, it’s important to avoid purely speculative stocks. Even if the investment horizon is a few months.
Let’s discuss the reasons to be bullish on these short-squeeze stocks.
Riot Platforms (RIOT)
Riot Platforms (NASDAQ:RIOT) stock has corrected from recent highs of $20.6 to current levels of $14.7. Even after a significant correction, the short interest in the stock remains high at 16.3% of free-float. I believe that RIOT stock is poised for a 100% short squeeze rally within the next two quarters.
It’s worth noting that Bitcoin (BTC-USD) seems to be consolidating around $30,000 levels. With Bitcoin halving due in 2024, a big rally is impending. This is the first reason to be bullish. While Bitcoin has surged by 76% for year-to-date, RIOT stock has skyrocketed by 335%. This is a demonstration of the upside potential.
I agree that Bitcoin’s halving will make mining relatively difficult. However, this is likely to be offset by a potential surge in the cryptocurrency. With Riot having ambitious mining capacity expansion plans, the outlook is bullish. The company ended Q2 2023 with a mining capacity of 10.7EH/s. If Riot exercises the option to purchase all miners, capacity will surge to 35.4EH/s by the end of 2024.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) has corrected by 58% in the last 12 months. Even after the big downside, CHPT stock has a short interest that’s 21.8% of the free float. I believe that a massive short-squeeze rally is impending as business fundamentals improve.
Given the penetration potential for the EV charging industry, ChargePoint has been on a high-growth trajectory. For Q1 2024, the company reported 59% year-on-year revenue growth to $130 million. Further, the company reported an 800 basis points expansion in GAAP gross margin to 23%.
An important point to note is that as the company’s charging network swells, subscription, software, and services revenue will increase. The continued growth in recurring revenue will positively impact the EBITDA margin.
It’s also worth noting that ChargePoint has a leadership position in North America. The company has also expanded its presence in 16 European countries. With a big addressable market, I expect strong growth and EBITDA losses to narrow meaningfully. With these fundamental positives, CHPT stock is poised for a reversal rally.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) stock has plunged by 63% in the last 12 months. The short interest remains high at 22% of the free float and I believe that a significant short squeeze rally is imminent.
I must add that if I had to choose a few EV stocks for the long term, Lucid would not be among them. However, I see a good trading opportunity at current levels.
In terms of positives, Lucid has a total cash buffer of $6.25 billion. The company seems fully financed for the next 18 to 24 months. However, I believe that the cash burn is likely to sustain beyond this period. Further dilution might therefore be on the cards.
Another positive is that the company expects to commence deliveries of Lucid Air Sapphire in September. Further, Lucid Gravity deliveries are expected towards the end of 2024. With an attractive pipeline, delivery growth is likely to accelerate.
On the date of publication, Faisal Humayun did not hold (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.
