Low float stocks can be some of the most volatile stocks in the market. If you mix in a short squeeze, the potential short-term gains in a low float stock can be extreme.
A stock's float is the number of shares that trade freely on the public market. Because insiders and institutional investors don’t typically trade their shares on a daily basis, those shares don’t typically contribute to a stock's near-term liquidity.
Float is the number of shares that remain after accounting for insider and institutional ownership.
Why Is It Important? When a stock gains positive momentum in the market, momentum buyers can rush in all at once. If a stock has a high short interest, short covering can quickly ramp up demand for shares, triggering a short squeeze. Since low float stocks have relatively few shares trading freely, a major imbalance in supply and demand can serve as rocket fuel for the share price.
Buying a low float stock with high short interest isn’t a guarantee of a short squeeze. There still typically needs to be some form of catalyst to get the stock moving in the first place. However, traders can keep an eye on these stocks for any signs of life to try to catch most of a potential big move.
Related Link: 3 Short Squeeze Candidates In The Materials Sector
Short Squeeze Candidates: Here are three communication services sector stocks that have all the ingredients for a short squeeze.
Digital Media Solutions Inc DMS: This company is an advertising technology and performance marketing platform that went public in July 2020. From mid-November to mid-December, the stock more than doubled from $6.32 to $12.97, demonstrating its potential for volatility.
The stock’s 3.2 million-share float and its short percent of float of 22.4% are the perfect ingredients for a potential short squeeze. In addition, short squeeze traders have frequently targeted stocks trading under $15 per share this year, and Digital Media shares currently trade at just $12.18.
The stock is up 75% in the past six months, suggesting a lot of short sellers are already feeling the heat and a potential short squeeze could be just around the corner.
See also: How to Make Money on a Short Squeeze
Marcus Corp MCS: Marcus operates movie theaters, hotels and resorts. Marcus’ revenue plummeted 71.8% in 2020 thanks to the pandemic, but as many meme stock traders have realized in 2021, short squeezes are technical market phenomena and don’t necessarily have anything to do with the company’s underlying business fundamentals or the stock’s long-term outlook.
Marcus’ float isn’t minuscule, but it's relatively small at around 22.4 million. More importantly, 25% of Marcus’ float is currently held short, the highest percentage of any of these three short squeeze candidates.
AMC Networks Inc AMCX: AMC Entertainment Holdings Inc AMC has gotten a lot of attention as a short squeeze play this year, but AMC Networks is also set up well for its own short squeeze.
AMC Networks' 22.7% short percent of float and its 43.9 million-share float provides plenty of opportunity for a potential squeeze. AMC Networks also has a history of extreme volatility. Since mid-January, the stock has traded from around $44 up to $73, back down to $45, back up to $83 and then back down to $53.
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