Throughout much of the new normal, the concept of short-squeeze stocks took off like wildfire. Essentially, this tactic centers on taking a contrarian bet against bearish traders in Wall Street’s version of playing chicken. However, there’s a smart way to go about this speculative endeavor.
Too many times, rookie traders focus simply on the short percentage of float. However, the best short-squeeze stocks to buy represent a multidimensional framework. Traders should also target the short interest ratio (days to cover) metric. That way, when panicked bears attempt to cover, they can neither run nor jump. But even then, this circumstance is only two-dimensional.
To add the third dimension to short-squeeze stocks to buy, I’m going to drill into the financials for each candidate. In this manner, you can spend your time assessing higher-probability short squeezes. After all, what’s the point of being contrarian on a garbage stock? More than likely, it will continue stumbling.
Below are the carefully crafted three-dimensional short-squeeze stocks to buy: they have a high short float, high short interest ratio, and specific solid financial metrics that make the targeted companies treacherous for bears.
GH Research (GHRS)
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Based in Ireland, GH Research (NASDAQ:GHRS) is a clinical-stage biopharmaceutical company dedicated to transforming the treatment of psychiatric and neurological disorders. Despite its relevance (as mental health has become a major concern), GH Research nevertheless failed to attract investors. On a year-to-date basis, shares tumbled almost 56%.
In addition, the company failed to capitalize on nearer-term positive sentiment that helped augment the major indices. Over the trailing month, shares slipped about 4% in equity value. According to data from Fintel’s Short Squeeze Leaderboard, it ranks number 59 (out of 250 entries) out of the most pessimistic short-squeeze stocks.
At the time of writing, GHRS featured a short float of 20.2% and a short interest ratio (days to cover) of 101.4.
Despite the obvious negativity, GH Research commands a very stable balance sheet. Primarily, it carries zero debt. Therefore, it might be able to weather the storm from bearish traders, making it an intriguing idea among short-squeeze stocks to gamble on.
Janux Therapeutics (JANX)
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Operating in California, Janux Therapeutics (NASDAQ:JANX) seeks to provide the next generation of immunotherapies for cancer. As with other biotechnology plays, I don’t think anybody roots against firms like Janux on a fundamental basis. However, the company failed to deliver the goods to stakeholders. Since the start of the year, JANX dropped 28% in equity value.
While near-term momentum earlier pinged positively, JANX became volatile lately. In the trailing month, shares fell 5%. According to Fintel’s Short Squeeze Leaderboard, Janux ranks as number 32 among the most negative short-squeeze stocks. At the time of writing, it features a short float of 24.3% and days to cover of 63.5.
Aside from its market losses, Janux stretches credibility for some investors because of its negative profit margins. However, the company features a reasonably stable balance sheet. For instance, its equity-to-asset ratio is 0.88, higher than the sector median of 0.73. Therefore, bears may be targeting the wrong idea, making JANX one of the short-squeeze stocks to buy.
Gemini Therapeutics (GMTX)
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Based out of Massachusetts, Gemini Therapeutics (NASDAQ:GMTX) is a precision medicine company focused on the development of new therapies through a deeper understanding of diseases. The company’s main specialty is age-related macular degeneration, which represents a major cause of blindness worldwide.
Based strictly on the narrative, Gemini enjoys a massive total addressable market. Unfortunately, the company failed to impress investors this year, leading to a 45% drop in equity value since the January opener. In the trailing month, shares fell almost 7%, reflecting broader and ongoing pessimism. Per Fintel, GMTX carries a short float of 13.2 and days to cover of 63.4. As ugly as these numbers are, GMTX may be one of the short-squeeze stocks to buy.
Again, the focus centers on the balance sheet. With no debt to its name, Gemini brings a fiscally resilient profile to the table. Therefore, it might be the overambitious bears that need to be cautious here.
Omega Flex (OFLX)
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Based in Pennsylvania, Omega Flex (NASDAQ:OFLX) is the preeminent international producer of flexible metallic piping products, according to its website. Silently undergirding the broader economy, Omega Flex theoretically makes good sense as an investment opportunity. However, Wall Street doesn’t see it that way. Since the beginning of the year, OFLX stock dropped 27% in equity value.
While it did benefit from some near-term action, shares only managed to move up 2.3% in the trailing month. As a result, the company started attracting bears. Per data from Fintel, OFLX ranks as number 83 on the dubious list of short-squeeze stocks. It carries a short float of 16% and a short interest ratio of 63.2.
Still, it’s going to be risky for bears targeting Omega Flex. For one thing, it features a highly stable balance sheet, with a near-ten-digit cash-to-debt ratio. As well, the company features positive free cash flow, meaning it can weather some storms. Finally, it also commands excellent profit margins. Thus, contrarian speculators may want to consider OFLX as one of the short-squeeze stocks to buy.
Red Violet (RDVT)
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Headquartered in Boca Raton, Florida, Red Violet (NASDAQ:RDVT) is a data analytics firm. Per its website, Red Violet harnesses the power of data fusion in order to provide meaningful insights for its clients. To be fair, I can understand why the bears targeted RDVT. With blue chips laying off thousands of workers, fewer enterprises are likely willing to spend money on analytics.
Thus, it’s not terribly surprising that RDVT performed poorly so far this year. Since the January opener, RDVT dropped 44% of its equity value. That said, it did pop up 35% in the trailing month. Apparently, more than a few contrarians recognize RDVT as one of the short-squeeze stocks to buy. Per data from Fintel, Red Violet features a short float of 10.2% and a short interest ratio of 46.1.
Financially, it’s not a great idea to short RDVT. First, the underlying company features a cash-to-debt ratio of 21.5, beating out nearly 72% of its competitors. Second, its three-year revenue growth rate stands at 27.4%, outmuscling 84% of its rivals. Plus, it features positive free cash flow, making it resilient.
Polar Power (POLA)
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Headquartered in Gardena, California, Polar Power (NASDAQ:POLA) is a designer and manufacturer of power and cooling systems for targeted market applications. Further, the company provides reliable and low-cost energy for applications that do not have access to the utility grid or will continue to power applications in the event of utility grid failure.
As with the other short-squeeze stocks on this list, Polar Power commands a relevant narrative. However, shareholders want to see results. Here, POLA fell short this year. Since the January opener, POLA dropped over 44% in equity value. Naturally, the bears sensed an opportunity. Per Fintel, POLA carries a short float of 10% and days to cover of nearly 33.
However, Polar Power does not seem like a smart idea to short. It features a stable balance sheet, with an Altman Z-Score of 3.71 reflecting low bankruptcy risk. Also, while its free cash flow is currently negative, management has done a good job of reducing its cash burn.
Via Renewables (VIA)
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Headquartered in Houston, Texas, Via Renewables (NASDAQ:VIA) is an independent retail energy services company operating in 100 utility service territories across 19 states. As well, the company takes leadership roles in environmental, social, and governance (ESG) projects, reflecting its commitment to green energy solutions.
On paper, Via Renewables hits all the right buttons. Further, with severe geopolitical troubles brewing, entire nations must rethink their energy infrastructures. However, Via has not been able to impress its shareholders – and that’s ultimately what matters. Since the beginning of this year, VIA dropped 37% of its equity value. Per Fintel data, VIA features a short float of nearly 17% and days to cover of almost 29.
While these stats are not encouraging, VIA could be one of the short-squeeze stocks to speculate on. Essentially, the company features a mix of pros and cons financially that will invariably attract the bears. However, it features enough stability in the balance sheet to make it possibly worthwhile moving in the opposite direction.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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