Warning: Beware of GameStop, Tandem Diabetes, and More

When GameStop (GME) posted disastrous quarterly results that failed to capitalize on the strong holiday period, shares plunged from $15 to around $10.00.

Last Friday, GME stock soared by 29% to close at $16.47. Fellow meme stock Tandem Diabetes (TNDM), a medical devices firm, gained 22.32%.

Gamestop’s 51% gain in only two days still earns it the meme stock crown. Trading volume surged by 8 times the normal volume. Without company-specific news, Reddit users on the subgroup, WallStreetBets, likely tried to short-squeeze bears. The short float is 22.46%.

Short-sellers may target firms with a high short float percentage. That includes BigBear.ai (BBAI) at 86.35%, Sunpower (SPWR) at 76.55%, B. Riley Financial (RILY) at 66.39%, and Aurora Cannabis (ACB) at 52.56%.

Meme Short Squeeze Short-Lived

Investors who bought GME stock during the pandemic meme trading days should take advantage of any rally. The stock is unlikely to return to old highs. Still, short-sellers should not bother to bet against GME stock. It is too crowded a bearish trade.

Bears need to find companies with a broken business model that suffers from liquidity challenges. Firms that cannot raise money are good short candidates. Those firms continue operating while posting higher quarterly losses. This strategy does not always work. For example, Plug Power (PLUG) and Fuelcell (FCEL) lasted for decades. Both firms continue to trade on the stock exchange.

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