The year 2021 was the time of the meme stock. Companies like GameStop (NYSE:GME) saw their share prices surge to previously unthinkable heights as traders leaned heavily into short-squeeze stocks. That momentum rapidly cooled in 2022, with meme stocks plunging across the board.
However, short-squeeze stocks are back in 2023. As of August 23rd, approximately 125 U.S.-listed companies have been big short-squeeze winners for the year. For that definition, I categorize a short-squeeze winner as a company with a market cap above $300 million, up at least 50% year-to-date and with 5% or more of its stock float sold short.
Many of these short-squeeze stocks are unprofitable and highly speculative firms. Investors should use great discretion in trading the average short-squeeze stock. These three, however, stand out as enduring short-squeeze winners with surprisingly good underlying fundamentals as well.
Shake Shack (SHAK)
Shake Shack (NYSE:SHAK) is a New York-based restaurant chain known for hamburgers, hot dogs, frozen custards and shakes.
The company went public back in 2015, and shares initially rocketed higher. At that point, Shake Shack was far too small to justify a high market valuation, and the stock languished for many years thereafter.
However, Shake Shack now appears to be turning the corner. The company has grown revenues from $459 million in 2018 to an estimated $1.1 billion this year. And Shake Shack is gaining effective operating scale as it grows; analysts expect it to finally turn profitable on an earnings-per-share basis this year.
Short sellers have long targeted high-flying and potentially overvalued restaurant stocks such as Shake Shack and Wingstop (NASDAQ:WING). But after the well-received Cava Group (NYSE:CAVA) IPO earlier this summer, short sellers are playing with fire betting against firms like Shake Shack.
Corporacion America Airports (CAAP)
Corporacion America Airports (NYSE:CAAP) is a multi-national private airport operator. It controls more than 50 airports in half a dozen countries. Argentina is its largest market, accounting for about half of EBITDA, followed by countries such as Brazil and Italy.
CAAP stock went public at $17/share back in 2018. It subsequently collapsed, dropping to less than $2 at its pandemic lows amid a global shutdown in travel and Argentine economic woes.
However, CAAP is steadily climbing now; the stock is up more than 700% from the Covid-19 lows. The rally has continued in 2023, with the stock hitting fresh highs earlier this month. It’s not hard to see why, with revenue growth coming in at a 27% year-over-year rate and profitability hitting record highs.
CAAP is now earning far more money than it did at the time of its IPO. The Argentine economy also appears set for an upswing as an election this fall may bring a more pro-business libertarian government to power. On top of that, CAAP opened a massive, gleaming new terminal at its flagship Buenos Aires airport earlier this year.
Despite all this, shorts haven’t covered their misguided bets. With management owning the majority of the company, the float is tight. Short interest is at 5%, and the days-to-cover ratio is above 10 days, indicating that shares could easily blast higher on any sort of further good news.
Neogen (NEOG)
Neogen (NASDAQ:NEOG) is a food and animal safety company. It provides an expansive array of products for testing foods for pathogens, pesticides, spoilage and so on. Its animal safety helps farmers and ranchers keep their livestock healthy, well-fed and tested for various illnesses and sanitary concerns.
Neogen has dominated its niche and become a massive winner over the years. Shares rose from a split-adjusted 50 cents each 30 years ago to a peak of nearly $50.
However, a messy merger with 3M’s (NYSE:MMM) food safety business, in conjunction with the 2022 bear market, caused shares to collapse. By the end, NEOG stock had fallen more than 75% peak-to-trough.
The thing is, there was never much wrong with the actual underlying business. Analysts forecast a small increase in profits this fiscal year, followed by a return to double-digit earnings per share growth in the year following that. And there is little doubt about the need for food and animal safety products going forward. Short sellers have overstayed their welcome, and NEOG stock will likely continue its rebound.
On the date of publication, Ian Bezek held a long position in NEOG, CAAP, and MMM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
