3 ‘Strong Buy’ Stocks That Are Heavily Shorted

Shorting shares can convey an investor severe earnings – however there’s commensurate danger, as properly. Basically, the quick dealer is betting {that a} inventory will fall in value; it’s the alternative of most inventory buying and selling, during which the investor desires the shares to realize.

Gaining, after all, is the danger in a brief commerce. There’s no ceiling on a inventory’s potential beneficial properties, and in principle, a selected inventory can see its value enhance infinitely. But in a brief promote, the dealer has made the preliminary transactions on borrowed shares – it’s known as a brief as a result of the dealer has carried out inventory buys utilizing shares he doesn’t personal, and in on the hook to return. The place is closed when the dealer buys the unique shares on the open market – and if he buys them at a value decrease than the preliminary borrow, he’ll make a revenue on the distinction.

Short buying and selling is just not for the faint-hearted. But it nonetheless stays a preferred buying and selling technique, and as we noticed earlier this yr, within the now-infamous GameStop quick squeeze, shorting can have a profound influence on the markets.

With this in thoughts, we turned our consideration to a few shares which have been closely shorted in current weeks, and we’ve used the TipRanks database to search out out simply the place they stand. The outcomes are attention-grabbing – these are ‘robust purchase’ shares with notable help from high analysts – i.e. analysts with the strongest observe document of score success.

PubMatic (PUBM)

We’ll begin with PubMatic, a software program firm within the advertising and promoting sector. PubMatic’s software program platforms are focused at digital publishers, and supply instruments for media consumers and app builders. The firm boasts that it may well enhance monetization charges and advert high quality, boosting publishers’ and advertisers’ revenues and return on funding. Every day, PubMatic sees greater than 1 trillion advertiser bids on its platforms, and processes greater than 2 petabytes of recent information.

Right now, PUBM shares are one of many market’s most closely shorted, with the quick curiosity at 55%. It’s a transparent signal that this inventory has been focused by quick sellers.

The inventory’s share value presents an attention-grabbing image, too. PubMatic went public in December of final yr, and PUBM shares peaked at almost $70 firstly of March. Since then, the inventory is down, coincidentally, 55%.

In its six months as a public entity, PubMatic has launched two quarterly earnings experiences. The second report, for 1Q21, confirmed income at $43.6 million, up 54% year-over-year – however down 17% sequentially. Earnings, at 9 cents per share, confirmed an identical sample. The EPS was up considerably from the break-even reported one yr in the past, however down sharply from the 39-cent revenue reported in 4Q20. On a sound be aware, PubMatic completed Q1 with $110 million in liquidity and no debt.

This comparatively new inventory has caught the eye of JMP Securities analyst Ronald Josey, who holds 5 stars from TipRanks and is rated #32 out of all of Wall Street’s analysts.

“Simply put, PubMatic is executing exceptionally well. Every vertical except for political and travel grew 50%+ Y/Y, the majority of revenue now has an alternative identifier associated with it that is not cookie based nor IDFA, and SPO as a share of ad spend nearly doubled Y/Y in the quarter. With ad spend consolidation likely to continue—PubMatic could have the majority of revenue come from SPO deals over time—and OTT/CTV a catalyst for additional spend growth as the ~$230B of global TV spend increasingly moves to data-driven programmatic sales channels, we believe PubMatic has a long runway to maintain elevated levels of growth,” Josey opined.

These feedback again up Josey’s Outperform (i.e. Buy) score on PUBM shares. His $64 value goal implies an upside of ~85% for the yr forward. (To watch Josey’s observe document, click here)

The Strong Buy consensus view on PubMatic’s shares is predicated on 7 analyst opinions, breaking down to six Buys and 1 Hold. The common value goal is $52.40, which suggests ~52% upside from the buying and selling value of $34.51. (See PUBM stock analysis at TipRanks)

Ontrak (OTRK)

Next up, Ontrak, is a knowledge and analytics tech firm that lives within the healthcare sector. Ontrak occupies a singular area of interest, utilizing AI to energy a platform that tracks and displays sufferers’ power well being circumstances – not at all times the primarily recognized illness, however the underlying power points, each systemic and behavioral, that may worsen illness. The objective is habits modification, to each enhance well being outcomes and ship price financial savings within the well being system. Ontrak’s service has been proven to cut back medical prices by as much as 40% in some instances.

So, Ontrak has a profitable product – however the inventory plummeted from the start of February into March, after information that the corporate had misplaced the contract with Aetna, its largest buyer. That information pushed down 2021’s ahead steering, and prompted a serious sell-off; OTRK shares are nonetheless down 65% from their January 27 peak.

Which would appear to suit with the 33.32% quick curiosity within the inventory. Ontrak is presently one of many market’s 20 most closely shorted shares.

There was excellent news for Ontrak throughout Q1, nonetheless, and the quarterly earnings launch highlights a few of it. Revenues got here in at $28.7 million, down barely from the earlier quarter however nonetheless the second-highest high line of the previous two years. Year-over-year, revenues had been up 133%, and money circulation from operations switched from a $3.1 million money misplaced one yr in the past to a internet of $6.four million out there in Q1. And in excellent news for the corporate’s program, a examine of therapy results confirmed that Ontrak produced vital outcomes for medical suppliers: a 64% decline in inpatient admissions, and a $486 price saving per member per 30 days.

Andrew D’Silva, a 5-star analyst with B. Riley Securities, acknowledges Ontrak’s headwinds, particularly the Aetna loss and its influence on revenues and earnings. He does, nonetheless, come down squarely with the bulls concerning the corporate’s path ahead.

“While sales will be materially impacted, the termination should result in increased member conversion rates, higher ASPs and increased gross margins for OTRK… Given the strong 1Q21 and existing business outside of Aetna (54% or ~$15.5M of 1Q21’s sales weren’t Aetna related), we believe the revised guide is conservative and doesn’t reflect the signing of any new logos,” D’Silva opined.

To this end, D’Silva puts a $58 price target on OTRK shares, indicating his confidence in a 66% 12-month upside potential and backing his Buy rating on the stock. (To watch D’Silva’s track record, click here)

What do other analysts have to say? 5 Buys and a single Hold add up to a Strong Buy analyst consensus. Ontrak’s shares are priced at $34.90 and have an average price target of $41, suggesting a 17.5% one-year upside. (See OTRK stock analysis on TipRanks)

CarParts.com (PRTS)

We’ll wrap up this list of short stocks with PRTS, or CarParts.com. This e-commerce company makes it easy and inexpensive for consumers to buy quality after-market car parts by factor direct. CarParts.com cuts away the middleman, and the brick-and-mortar infrastructure, and its combination of low cost and quick delivery served the company well during the corona crisis.

This could explain the stock’s share price. Over the past 12 months, PRTS shares are up 107%. As for the short sellers, PRTS has gotten their attention. The stock has a 25.11% short interest, and is one of the top 20 most shorted stocks currently.

In May, the company reported 1Q21 results and the shares have been slowly rising since. CarParts.com reported 65% yoy growth in quarterly sales, to a record level of $144.8 million, and marked its 5 quarter in a row of year-over-year revenue gains. The company saw gross profits of $49.2 million, also up 65%, and is looking at plans to expand its Texas distribution center to more than 1 million square feet.

From Roth Capital, Darren Aftahi, another 5-star analyst, writes of CarParts.com: “PRTS still seems to be operating at essentially ‘full capacity’ meaning it is selling as much as it can be, based on current inventory levels. We believe this is likely the reason behind ‘active discussions’ to expand its TX DC by ~75%, which would provide greater upside to inventory long term and allow sales to expand, although likely with a 2022 and beyond ‘full’ impact. With the potential expansion, we believe additional operating leverage could be had due to the existing footprint/ overhead.”

The analyst summed up, “Shares stay engaging buying and selling like a ‘no development inventory’ at ~1.3x FY21 gross sales relative to ~21% y/y projected development when in comparison with increased development friends between 2x-4x…”

Aftahi’s upbeat outlook leads him to put a Buy rating on the stock, and his price target, of $30, implies an upside of ~65% for the year ahead. (To watch Aftahi’s track record, click here)

All in all, there are only 3 reviews on record for this stock, but all are positive – making the Strong Buy consensus rating unanimous. The shares are trading for $18.20 and have an average target of $23, for ~26% upside on the one-year time frame. (See PRTS stock analysis on TipRanks)

To discover good concepts for shares buying and selling at engaging valuations, go to TipRanks’ Best Stocks to Buy, a newly launched software that unites all of TipRanks’ fairness insights.

Disclaimer: The opinions expressed on this article are solely these of the featured analysts. The content material is meant for use for informational functions solely. It is essential to do your personal evaluation earlier than making any funding.

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