It was not long ago that Novavax (NASDAQ:NVAX) was among the stocks with high short interest. The stock had been trending lower for an extended period. However, with one positive news, NVAX stock skyrocketed from February lows of $3.5 to 52-week high of $23.86.
This is just one example of short-squeeze stocks delivering multi-fold returns in quick time. In the meme euphoria of 2021, stocks with high short interest as a percentage of free-float was targeted by retail investors.
With the meme stock frenzy on the cards, short-squeeze stocks will again be in the radar. Even if a company with bearish sentiment delivers one good news, the stock can surge. The focus of this column is therefore on ideas that represent companies with average business fundamentals and overly negative sentiments.
It’s best to steer clear of purely speculative ideas even when the overall market sentiment is bullish. Therefore, besides the short interest factor, let’s look at the reasons to be bullish on these stocks for the near-term.
EVgo (EVGO)
Even after a correction of 50% in the last 12 months, short interest in EVgo (NASDAQ:EVGO) stock remains high. I see this as a good opportunity to accumulate with positive business catalysts likely to support reversal from depressed levels.
It’s worth noting that EVgo has been reporting strong top-line growth. For Q1 2024, revenue increased by 118% on a year-on-year basis to $55.2 million. During the quarter, the charging company added 250 new operating stalls. With 3,780 stalls under operation or under construction, it’s likely that robust growth will sustain.
The concern has however been EBITDA level losses. Having said that, EBITDA loss for Q1 2024 was $7.2 million as compared to losses of $20.1 million in Q1 2023. It’s likely that losses will continue to narrow on the back of operating leverage. EVgo has guided for adjusted EBITDA breakeven in 2025.
Therefore, EVgo has robust growth outlook coupled with progress towards profitability. These factors are likely to translate into a sharp short-squeeze rally.
Aurora Cannabis (ACB)
Cannabis stocks are likely to have a big breakout rally. The key reason being relatively friendly regulatory stance. Germany recently legalized cannabis, and in the United States, it is likely to be reclassified as a Schedule III drug.
At the same time, there are short-squeeze stocks that are likely to surge higher. Aurora Cannabis (NASDAQ:ACB) stock looks attractive after remaining sideways for the last 12 months. With high short interest, I expect a 100% to 300% rally in quick time.
Specific to Aurora, presence in 15 global cannabis markets is a big positive. The company has already been delivering healthy growth in the medicinal cannabis business. It’s likely that stellar growth will sustain in the coming years.
I must add that Aurora reported positive adjusted EBITDA for the fifth consecutive quarter. The cannabis company has also reaffirmed its guidance for positive free cash flow for the current financial year. As financial flexibility improves, Aurora will be positioned to make aggressive investments.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) is another name to consider with short interest of almost 40%. It’s worth noting that BYND stock has declined sharply by 47% in the last 12 months. Concerns related to growth have impacted investor sentiment. However, the stock is deeply oversold and seems poised for a sharp reversal rally.
For Q1 2024, Beyond Meat reported revenue decline of 18% on a year-on-year basis to $75.6 million. Adjusted EBITDA loss for the period was also significant at $32.9 million. Clearly, the business has been struggling and the same is reflected in the stock.
However, there are two potential positives. First, Beyond Meat is looking to bolster its balance sheet and achieve profitable operations. While equity dilution might be on the cards, it’s likely that EBITDA level losses will narrow in the coming quarters.
Further, in April, the company launched Beyond IV at various grocery stores in the U.S. This is the company’s “meatiest, juiciest beef products yet.” Additionally, the product provides “21g of plant-based protein and are made with avocado oil.” It remains to be seen if the new launch can be a catalyst for renewed growth.
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.