Since the start of this year, retail traders on social media platform Redditt have managed to initiate a series of short squeezes that has driven prices of certain stocks higher. These stocks are referred to as “Meme Stocks.” Some examples of meme stocks are GameStop, AMC Entertainment, BlackBerry, MicroVision, and Sundial.
In this article, I am going to take a look at three stocks with high short interest ratios that could become meme stocks: PubMatic (PUBM), Petco Health and Wellness (WOOF), and SmileDirectClub (SDC). A short interest ratio is created by dividing the number of shares sold short compared to a stock’s average daily trading volume.
According to data from Fintel, PubMatic has a short interest ratio of 24%. PubMatic is a cloud infrastructure platform that enables real-time programmatic advertising transactions for internet content creators and advertisers worldwide.
In the first quarter of 2021, its sales were up 54% year over year at $43.6 million while its dollar retention rate stood at 130%. It means existing customers have spent over 30% on PubMatic’s cloud-based platform compared to the year-ago period.
PubMatic is well poised to benefit from the shift towards online streaming allowing it to grow its top-line at a rapid clip. The company estimates top-line growth at 70% year over year in Q2. In the March quarter, its cash flow stood at $9.4 million, accounting for 22% of sales while it ended the period with over a billion dollars in liquid cash and zero debt.
Analysts have a 12-month average price target of $49 for PubMatic stock which is over 30% higher than its current price.
Petco Health and Wellness
With a short volume ratio north of 30%, Petco Health and Wellness might be on the radar of retail traders on Reddit. The stock is already down 50% from record all-time highs and might be ripe for a turnaround. Petco operates as a retailer of pet consumables, supplies, and companion animals and services. It also offers grooming, in-store and online training, as well as digital health and pet health insurance services.
In the first quarter of 2021, Petco Health and Wellness managed to increase sales by 27% year over year to $1.4 billion. It acquired 1.2 million net new customers which was the third consecutive quarter where customer growth was over a million. Its adjusted EBITDA rose by 45% to $125.7 million
The proceeds from Petco’s IPO allowed the company to reduce total debt by 52% to $1.7 million while net debt fell by 53% to $1.5 billion.
The final stock on our list is SmileDirectClub that has a short interest ratio of 16%. It operates an oral care company and offers clear aligner therapy treatment. SDC manages the end-to-end process which includes marketing, aligner manufacturing, fulfillment, doctor treatment as well as monitoring of these treatments via a network of 250 state licensed orthodontists and general dentists in the U.S., Puerto Rico, Canada, Australia. The U.K., New Zealand, Ireland, Hong Kong, Germany, Singapore, Spain, and Austria.
SDC stock is down 53% from record highs and has lost 24% year to date, significantly underperforming the broader markets.
In fiscal 2020, SDC sales stood at $656 million which was over 12% lower compared to revenue in 2019. Wall Street expects sales to rise by 27% to $835 million in 2021 and by 25% to $1.04 billion in 2022. This growth will allow the company to narrow its loss per share from $0.71 in 2020 to $0.16 in 2021.