Summer is almost over, and Reddit stocks are still riding high.
As of market close Tuesday, AMC Entertainment Holdings (NYSE:AMC) stock was fresh off an 8.7% one-day rally. While still down from its all-time high, the stock is in the midst of one of its best runs ever.
There are many theories to explain what’s going on here. One of the most prominent is that the attention these stocks are getting on Reddit is itself driving the gains. R/wallstreetbets–the place where the meme stock phenomenon got started–has a massive community. With 10 million users, it could buy $1 billion worth of stock if all users invested just $100 each. So, the Reddit publicity theory probably explains the meme stock phenomenon to an extent.
But there’s more to it than that. Most Reddit stocks have high short interest, and when shorts buy back the stocks they sold short (when they “cover”), they drive the price higher. This may explain some of the price action we’ve seen in meme stocks.
Of course, Reddit die-hards believe that the true wave of short-covering is coming in the future. Dubbed the “mother of all short squeezes,” this event is expected to take meme stocks to all new highs. In this article, I will explore three Reddit stocks with high short interest that could be real MOASS candidates.
AMC Entertainment Holdings has been the most popular meme stock of Summer 2021. It played second fiddle to Gamestop (NYSE:GME) in the initial meme stock rally of January, but it has since become the most popular Reddit stock of them all.
According to MarketBeat, AMC has 92.4 million shares being sold short, or approximately 18.9% of the float. Another data provider, Ortex, has about the same number.
“Float” refers to the publicly tradable portion of shares outstanding. Any stocks that aren’t tied up (say, in a lockup period) are considered to be part of the float.
As well, 18.9% is a very high short percentage of float. If AMC shorts were all forced to cover at once, they would appreciably increase the stock’s price. So, this is one meme stock with real short squeeze potential.
Gamestop is another meme stock with seriously high short interest. According to MarketBeat, about 12% of this stock’s float is being sold short. That’s less than AMC but still enough to produce an appreciable increase in the stock price. Particularly if a large percentage of those short started covering on the same day.
BlackBerry (TSX:BB)(NYSE:BB) is another meme stock with pretty high short interest. This stock doesn’t get quite as much attention as the other two on this list, but it’s notable for being Canada’s very own meme stock.
According to MarketBeat, 6.5% of BB’s float is being sold short. That’s far lower than AMC or GME but still pretty high. One source reports that the average short interest for an S&P 500 stock in 2020 was 1.7%. If S&P 500 short interest is still around that level then BB is far above average. So it’s a viable candidate for a squeeze play–though less so than its two American cousins.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry.