Short squeezes will remain a big story in the financial-news media until heavily shorted stocks that have been pushed up by individual investors connected through social media come crashing back to earth.
The biggest “winners” during this craze have been GameStop, up 1,745% for 2021 through Jan. 27, and AMC Entertainment, which has popped a more modest 839%. There are many others listed, below.
There is more than one way to list short squeezes. Before moving to the lists, here are three definitions:
- Short selling is when an investor borrows shares and immediately sells them, hoping to buy them back later at a lower price, return them to the lender and pocket the difference.
- Covering is when a person with a short position buys the shares to return them to the seller, hopefully to profit if the shares have gone down in price since they were shorted, or to limit losses if they went up after being shorted.
A short squeeze is when a mass of investors looking to cover short positions start buying at the same time. The buying pushes the share price higher, making short investors accelerate their attempts to cover, which sends the shares spiraling higher in a feeding frenzy. The action in shares of GameStop Corp.
and AMC Entertainment Holdings Inc.
have illustrated this phenomenon perfectly over the past week.
Even if you don’t buy the argument that these short squeezes are temporary phenomena and that the prices will normalize, consider this: Shares of GameStop closed at $347.51 on Jan. 27. The company is expected to show a loss for calendar 2021, but a profit of $1.22 a share in calendar 2022. The business has its challenges because so many videogames are now downloaded, rather than purchased at stores. The pandemic has also, of course, hurt sales. But if we look back 10 years, the company’s best earnings came in calendar 2015, when it earned $3.86 a share. Even if GameStop were to improve its earnings to that level, the stock would be trading at a price-to-earnings ratio of 90.
Short squeeze lists
These lists are culled from the Russell 3000 Index
which encompasses the 3,000 largest publicly traded U.S. stocks by market capitalization. Such a large group was the basis in order to include some stocks that had been trading at microcap levels before ballooning in value. This means some aren’t yet included in other broad indexes. GameStop’s market capitalization was $24.2 billion at the close on Jan. 27, up from $9.6 billion the previous day and $1.3 billion at the end of 2020, according to FactSet.
During an interview on Jan. 25, Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF
(which is meant to be used as a hedging tool), said that a percentage of short-sales to total shares available for trading of “over 30% to 40% is outrageously high.”
Among the Russell 3000, there were 68 stocks with at least 25% short interest as of the close on Jan. 27, according to FactSet. The data provider uses the total float at of the end of the previous month as the denominator, but the numerator — the number of shares sold-short — is updated twice a month, typically on the 25th day of the month. So the data is rather fresh, and the percentage short for GameStop was down to 120% from 138% only two days earlier, according to FactSet’s data.
Here are the 30 stocks among the Russell 3000 with at least 30% short interest that went up the most during 2021 through Jan. 27:
You may have to scroll the table to the right to see this year’s percentage price increases.
Looking further down the list from GameStop and AMC, several other names shot up on Jan. 27, including: Bed Bath & Beyond Inc.
which was up 43% for the day; National Beverage Corp.
which was up 40%; iRobot Corp.
up 28%; PetMed Express Inc.
up 34%; and Macy’s Inc.
which added 12% for the day, for a year-to-date gain of 58%.
But there is another way to look at short exposure — dollars, rather than percentages. If we look at it that way, Tesla Inc.
is the most heavily shorted stock, even with short interest of 7.4%. The company’s market capitalization was $819 billion at the close on Jan. 27, making for $60.9 billion in short positions.
There are 15 U.S. companies with at least $3 billion in short positions whose shares have risen by at least 20% during 2021:
So GameStop tops the second list as well. But even if a short percentage is relatively low, as it is for Tesla, there is a lot of money betting against the stock. Others of note on the second list include Plug Power Inc.
which makes hydrogen fuel cells and is 16% (or $4.1 billion) sold short; DoorDash Inc.
with $4.4 billion (8%) in short positions; and even coronavirus-vaccine maker Moderna Inc.
with $4.7 billion (also 8%) in short positions.
Beyond Meat Inc.
made both lists, with 43% of shares outstanding sold short, for $5.2 billion in bets against the stock.