When someone bets against a stock and shorts it, they are selling an investment they don’t currently own. And that creates the obligation to eventually buy it back at a later date. The risk here is that the stock’s price takes off in value — resulting in losses for the speculative investor. In an extreme situation, there can be a short squeeze where…
many short-sellers are rushing to cover their positions, thus driving a stock’s price up even higher.
Two stocks that could result in possible short squeezes this year are Teladoc Health (NYSE:TDOC) and Beyond Meat (NASDAQ:BYND). These are solid businesses that possess some incredible growth potential that I wouldn’t dare bet against.
1. Teladoc Health
Telehealth giant Teladoc Health had a rough year in 2021, falling more than 54% while the S&P 500 rose by 27%. It wasn’t for a lack of results, though. The healthcare company continued to deliver quarter-over-quarter growth, even as the economy was returning to normal (although now that remains in doubt in light of the omicron variant).
Sales for the third quarter (ending Sept. 30, 2021) totaled $522 million and were up 4% from the previous period. On a year-over-year basis, they were up over 80% thanks to the acquisition of chronic care company Livongo. The acquired entity wasn’t part of the business until Oct. 30, 2020, and thus, its results weren’t included in the numbers for the prior-year period. In the second quarter, Teladoc’s top line totaled $503 million and was 11% higher than the first-quarter revenue of $454 million.
In each one of its quarterly reports for 2021, Teladoc raised its annual guidance for both revenue and total visits. The one negative can be that the business is still in the red, but even its earnings before interest, taxes, depreciation, and amortization (EBITDA) loss is trending in the right direction. In Q3, the company projected a loss of no more than $80 million for the full year, and just a period earlier it forecast a loss of $100 million to $120 million.
Short-sellers are betting against the stock despite its improving results, which could prove to be a big mistake this year. Short interest (as a percentage of float) hasn’t been this high in over a year.
If Teladoc can continue delivering strong growth numbers, it could be hard to keep the stock down, and a short squeeze may be inevitable in 2022.
2. Beyond Meat
A stock with even more short interest is fake meat substitute manufacturer Beyond Meat. At 39%, its short interest as a percentage of its float is higher than the usual suspects, AMC Entertainment and GameStop…
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