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.
Short Squeeze Candidates: Here are three consumer staples sector stocks that have all the ingredients for a short squeeze.
Ambow Education Holding Ltd AMBO
Ambow Education is an online career enhancement and educational services provider. The stock is also the perfect short squeeze candidate within the consumer staples sector.
Ambow’s 2.3 million-share float is far lower than the other two heavily shorted stocks mentioned. Ambow has 28.6% of its float held short, a relatively high short percent of float. In addition, short squeeze traders have frequently targeted stocks trading under $5 per share this year, and Ambow’s shares currently trade at just $2.14.
Finally, Ambo has repeatedly demonstrated its potential for extreme volatility. In September 2020, the stock jumped from $1.63 to as high as $6.43 in a matter of days. In January 2021, Ambow again rocketed from under $2.50 to as high as $5.68 in just a few days.
Revlon Inc REV
Revlon makes beauty and personal care products.
The company has reported negative revenue growth in each of the past three years, 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.
Revlon has a one-two punch of a small float of 6.7 million shares and a high short percent of float of 26.6%.
National Beverage Corp. FIZZ
National Beverage produces and sells a variety of waters, juices, energy drinks and carbonated soft drinks.
National’s 28.6% short percent of float and its 18 million-share float provide plenty of opportunity for a potential squeeze. The stock also has a history of extreme volatility. In January, National’s stock price surged from under $80 to as high as $196.43 in a matter of weeks.
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