Each week, we update and publish our own short interest table. It’s complied using data from Bloomberg, and looks at both the notional short interest and the short interest as a percentage of the float.
If you’re unfamiliar with what shorting a stock is, see the below explanation. For those that are already familiar, move on to the next subheading.
Shorting a stock occurs when you think that the share is going to fall in value. You borrow a share from another investor, and sell it in the market. If the share price does fall, you can buy it back at a cheaper price. You return the share to the investor, and pocket the difference. In reality, on most retail trading platforms, shorting a stock simply involves clicking a button saying ‘sell’.
Heavily shorted stocks to consider buying
By the very nature of heavily shorted stocks, a lot of people clearly think the share price is going to fall. This makes any of the two below stocks risky to consider buying. Yet the rewards can be potentially very high should the share price head higher. This can cause investors that are short the stock to buy back shares, pushing the shares even higher.
The first stock is DatChat (NASDAQ:DATS). It has featured on the list several times in the past, with it currently having 38.4% of float sold short. According to Bloomberg, this puts it in the top 10 shorted US stocks.
DatChat is a blockchain, cybersecurity, and social media company. A fairly unusual mix of operations, but one that saw the company gain enough traction to go public back in August. The IPO level was at $4.15 a share, with it elevating to $15 back in October. It’s currently trading around $7.5, retracing heavily from the move last month.
Currently, the business makes hardly any revenue, and has a small user base of around 22,000, according to a recent prospectus. This is likely why the heavy short interest has come from after the IPO rally. However, we think the market is a large one, with huge potential to take advantage of in the future.
Further, with the recent success of DWAC and chatter around Trump’s social media push, this sector is hot right now. Whether this means a potential buyout of DATS from a behemoth, or simply chipping away at market share, remains to be seen.
Another option, but not without risks
The second stock is Fisker (NYSE:FSR). Shares are up 39% over the past month, largely thanks to to what we think were net positive Q3 earnings. Yet short interest on the stock remains high, at 31.3% of float.
The company is an electric car manufacturer, which is on the cusp of breaking out. In the latest report it commented that “we continued to make rapid progress in Q3 2021 on our core focus, achieving program milestones that ensure we execute Fisker Ocean SUV on-time and with several segment-leading features.”
Short sellers are clearly betting on the company having a flop on deliveries, but we think it could be a shrewd move to allocate a small amount of money to Fisker. It might not be the next Tesla, but it doesn’t have to be in order to still generate high returns for shareholders.
Overall, we think that both DatChat and Fisker are two stocks worth buying, despite the heavy short interest.