Meme stocks aren’t going anywhere anytime soon. One of the most interesting trends to emerge during the pandemic, this subcategory of stocks is generating a lot of interest, especially from retail investors. And that has led to a sharp increase of buying into companies with high short ratios.
This is traditional investing turned upside down. High short interest signifies bearish market sentiment, while low ratios signify neutral or bullish sentiment. But investors taking their cues from Reddit and other social media platforms regard a high short ratio as a buying signal.
Every so often, Wall Street bets heavily against a stock through shorting. But these big firms sometimes gets it wrong, and when they do, it can trigger an effect called a “short squeeze.” However, we have been seeing an abnormal amount of short squeezes in the last year or so, ever since r/WallStreetBets began a campaign to crush hedge funds and cash out shorting GameStop (NYSE:GME) by instigating a short squeeze. Chatter on social media platforms similarly helped AMC Entertainment (NYSE:AMC) fend off bankruptcy.
Whatever their motivations are, it’s clear investors need to keep an eye on high short interest stocks moving forward. Here are 7 high short ratio stocks to watch for a breakout:
- Workhorse Group (NASDAQ:WKHS)
- Washington Prime Group (NYSE:WPG)
- AMC Entertainment Holdings (NYSE:AMC)
- Children’s Place (NASDAQ:PLCE)
- Tanger Factory Outlet Centers (NYSE:SKT)
- The GEO Group (NYSE:GEO)
- Blink Charging (NASDAQ:BLNK)
However, before we take a deep dive on these stocks, it’s important to note that while going long on a stock with high short interest can lead to short-term profits, you can also get burned quite quickly, so always invest the money you can afford to lose when investing in this space.
High Short Ratio Stocks: Workhorse Group (WKHS)
Workhorse Group is a manufacturing company based in Cincinnati, Ohio, focused on manufacturing electric-powered delivery and utility vehicles. The biggest reason it finds itself on this list is the loss of a United States Postal Service contract to assemble 50,000 to 165,000 new vehicles. WKHS was perceived as a frontrunner, and missing out sent the stock into a tailspin it has yet to recover from.
Shares lost $2 billion in value after the electric vehicle maker missed out on the Next-Generation Delivery Vehicle contract, awarded to Oshkosh (NYSE:OSK). USPS reps met with the company after the announcement. But there hasn’t been any further development on that end. Despite the stock popping at the development, the prospect of Workhorse winning back the contract appears bleak.
Hence it is not surprising short-sellers have targeted the company. Regardless, I would not want to invest in this one. Yes, Redditors did pile into this one, but the sentiment seems to have cooled off. In the last month alone, the stock has lost 21.3%. With limited catalysts in sight, it’s best to give this one a rest: a short squeeze is highly unlikely.
Washington Prime Group (WPG)
Washington Prime Group is a real estate investment trust (REIT) that invests in shopping centers. Normally, income investors love REITs. A REIT is required by law to distribute 90% of its taxable earnings in the form of distributions. In turn, REITs don’t pay any corporate income taxes. Therefore WPG is among those stocks that are permanent fixtures in investment portfolios.
But the reason why you find it among high short ratio stocks is that WPG is a retail REIT. And even though things are slowly getting back to normal, retail’s future is still up in the air — rents have fallen dramatically since the pandemic’s start.
WPG has also borne the brunt of the current crisis. Even though things are looking up somewhat, the REIT still reported a loss of $105.5 million, or $4.26 per share, in its most recent quarter, after reporting a loss in the same period a year earlier.
The only positive was the company reporting funds from operations (FFO) of $18.8 million, or 75 cents per share, in the period. That’s a silver lining because FFO is a closely watched metric in the REIT industry. It takes net income and adds back items such as depreciation and amortization.
All things considered, it makes sense this stock is getting shorted in the current climate. Could we see a turnaround? Again, it all depends on Redditors and how they feel about the stock. They could rally behind WPG, since it’s a name with a history and credibility. But it is still a gamble.
AMC Entertainment (AMC)
What can you say that hasn’t already been said about AMC? Redditors kickstarted meme stock mania with the embattled movie chain operator.
The rise of Netflix (NASDAQ:NFLX) and other streaming giants has made it crystal clear that the cinema industry will have to make drastic changes to survive. You would never guess it looking at AMC stock. Time and again, Redditors have forced analysts like me to eat humble pie when we have written analysis pieces against the company. It’s getting to the point where it’s a matter of prestige for social media that the company does well.
Nevertheless, management has played the situation well. It issued a decent amount of equity and has endeavored to keep Reddit happy with its corporate moves. For example, it nixed a proposal that would have asked its shareholders to allow the movie theater chain to issue up to 25 million more shares and named CEO Adam Aron as chairman, replacing an executive connected to Beijing investment firm Dalian Wanda Group.
At this point, Redditors seem personally invested in the future of this company. That makes it tough to advocate against it, even though fundamentals are clearly moving in the wrong direction.
The Children’s Place (PLCE)
The Children’s Place has a one-year return of 358.4%, clearly indicating two things. One, investors have priced in the recovery before it has occurred. And two, retail investor interest in this one is very high.
That’s not to say the specialty retailer of children’s apparel and accessories is a bad stock. Certainly, when Covid-19 first rocked the markets, earnings and revenues were nosedived. However, since that time, the company has mounted a comeback.
PLCE reported second-quarter FY21 adjusted EPS of $1.71 versus $(2.68) last year. Digital sales were excellent in Q2, representing 43% of the total sales for the quarter vs. 29% in Q2 of 2019. The bulk of the digital business, 70% to be exact, is now coming through mobile devices.
Speaking on this development, Jane Elfers, President and Chief Executive Officer said, “Our digital business continues to grow on both the top and bottom lines. Our digital sales represented 43% of the total net sales for Q2 2021 versus 29% in Q2 2019, with over 70% of our digital business now coming through a mobile device. Our active mobile users are up double digits, on top of the significant growth we experienced last year.”
Considering all these factors, there is merit to investing in PLCE beyond the prospects of a short squeeze.
Tanger Factory Outlet Centers (SKT)
Tanger Factory Outlet Centers is REIT that owns and operates outlet centers in the United States and Canada. This fully integrated, self-administered and self-managed real estate investment trust operates around 32 outlet centers, spanning a gross leasable area of roughly 12 million square feet, holding over 2,400 stores.
Much like other REITs in the space, SKT suffered at the hands of the pandemic. However things are getting better and earnings are returning. As a result, Tanger Factory has attracted tremendous investor interest.
FFO was $0.30 per share, or $32.4 million, compared to $0.10 per share, or $10.0 million, for the prior-year period. Net income was $0.06 per share, or $6.2 million, compared to a net loss of $0.54 per share, or $50.3 million, last year. Additionally, the company hiked its guidance for the full year because Tanger’s business operations exceeded expectations.
Consequently, SKT has outperformed the S&P 500 by 159.6% and its sector by 156.5% in the past year. Considering this rapid growth, there is a feeling that investors have already priced in the comeback before it has materialized.
The GEO Group (GEO)
One of the more controversial companies out there, GEO is an REIT that invests in private prisons and mental health facilities in North America, Australia, South Africa, and the United Kingdom. Considering the political climate, it should not come as major shock investors have soured on this one.
Fundamentals remain solid, though. GEO recently reported a net income figure of $42.0 million in the second quarter of 2021 compared to $36.7 million in the year-ago period. Revenues came in at $565.4 million compared to $587.8 million for the second quarter of 2020. Adjusted FFO came in at $84.4 million, or $0.70 per diluted share, compared to $78.8 million, or $0.66 per diluted share, in the year-ago period.
All of these figures tell a tale of a very stable enterprise that is motoring along at a steady pace. However, the political unrest seen lately may lead some to believe this company is scorched earth. Sustainable investment opportunities used to be limited, but today it is hard to find a company with an ESG policy. Meanwhile, money managers and institutional investors increasingly consider ESG investing to help identify their next stock picks.
Considering these factors investing in stocks like GEO becomes a perilous prospect.
Blink Charging (BLNK)
As the adoption of electric vehicles increases in the U.S. and Europe, companies like Blink Charging, a leader in nationwide public electric vehicle (EV) charging equipment and software, stand to benefit immensely. However, as is the case with the border EV sector, valuations remain stretched. The company reported revenue of $6.2 million for FY2020, but the stock currently trades at a market capitalization of $1.36 billion.
It has thousands of EV charging stations across the U.S., located at convenient locations, such as airports, hotels, and other locations. Blink Charging expects its business to grow as consumers shift toward EV purchases and is pursuing an aggressive M&A strategy as a result. On May 11, Blink Charging announced the acquisition of Blue Corner, an EV charging company based in Belgium and has a portfolio of 7,071 charging ports.
With a one-year return of 286.8%, the stock has rewarded investors handsomely for their faith. However, it looks like the rally has led to the stock becoming overheated in the eyes of many.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.