3 Heavily Shorted Retail Stocks That Could See GameStop-Like Squeezes

The extraordinary rise of GameStop Corp. (GME) has been roiling Wall Street over the past couple of days, with the whole world observing the stock and its price movements intently.

What started as a group discussion on Reddit has unfolded dramatically causing institutional investors and hedge funds hefty losses. GME has been a highly shorted stock over the past year, given the company’s low profitability and declining popularity. Its omnichannel business model, which is reliant on physical stores,  competes with the online video games and entertainment industry, which has been garnering significant market share since the onset of the COVID-19 pandemic.

GME’s bleak growth potential made it an easy target for some renowned short sellers and hedge funds, such as Melvin Capital and Andrew Cleft’s Citron Research. However, a Reddit investment discussion group, wallstreetbets, with more than  2 million subscribers, popularized the stock, leading to investment in it by increasing numbers of retail investors. This caused GME to gain nearly 4,500% over the past year, and 927.6% year-to-date. With the share prices rising rapidly, many hedge funds were forced to close their short positions to limit their losses, leading to higher demand for the stock making its price rise still further, resulting in a short squeeze.

Hedge funds have cumulatively lost more $5 billion on the stock. However, the sustainability of GME’s price performance is questionable because the company’s revenues and earnings have been declining over the past couple of years.

While GME’s rally currently looks unsustainable, several other companies, such as Academy Sports and Outdoors, Inc. (ASO), Tanger Factory Outlet Centers, Inc. (SKT) and The Children’s Place, Inc. (PLCE), which also have been heavily shorted, have real potential we think. These companies have delivered impressive results in their last reported quarter. As investors look for alternative stocks post the GameStop incident, these stocks could prompt another short squeeze.

Academy Sports and Outdoors, Inc. (ASO)

ASO is a sporting goods and outdoor recreation retailer operating in the U.S.  The company owns and manages more than 259 stores across 16 states and has an online market presence through its website academy.com. Owned by KKR & Co., ASO made its public debut on October 31, 2020. However, the company failed to hit its IPO price target range of $15-$17 and  trading in the stock began at $13 apiece.

ASO has been a heavily shorted stock since the pandemic, given reduced demand for outdoor recreational goods amid lockdown conditions which have also negatively affected the performance of the company’s retail stores. While ASO maintains an online presence, most of its business is concentrated through its retail stores in the Southern states. ASO has a short float of 11.4%, indicating that more than 11% of its shares are currently short in the market. ASO’s short ratio, which reflects the number of shares shorted with respect to the average trading volume, is 7.52x. Approximately 69.8% of ASO’s shares are currently held by institutions.

However, while many hedge funds are betting against the stocks, the company is exhibiting significant business resiliency and fundamental strength. ASO’s revenues have increased 17.8% year-over-year to $1.35 billion in the fiscal third quarter ended October 31, 2020. Its net income has risen 109% from the year-ago value to $59.60 million, while its adjusted EPS has grown 168% from the prior-year quarter to $0.91. ASO beat the consensus EPS estimate by 152.8% over this period.

Analysts expect ASO’s EPS to rise 41.3% per annum over the next five years. A consensus revenue estimate of $5.60 billion for the fiscal year ending January 31, 2021 represents indicates a 15.9% improvement year-over-year.

ASO has gained 70% since its public debut on October 1. The stock hit its all-time high of $26.70 on January 24. Currently trading at $21.07, analysts expect ASO to hit $24.57 soon, indicating a potential 11.3% upside. With such bullish sentiment, the uptrend could allow short sellers to reverse their position in the stock, triggering a bear squeeze.

Tanger Factory Outlet Centers, Inc. (SKT)

SKT is a fully integrated, managed and administered REIT, which owns and operates outlet centers across the U.S.  and Canada. The company has an operating partnership agreement with Tanger Properties Limited Partnership and subsidiaries. It has properties in 20 states in the country.

With malls and outlet shops remaining closed for the better part of last year, along with the rising popularity of the e-commerce channels, institutional investors have continued to bet against SKT. The stock has a short float value of 51.9%, indicating that more than 50% of its floating shares are currently shorted. Moreover, the company has a short ratio of 12.26x. Approximately 47.25 million of SKT’s shares were shorted as of January 14, with 79.4% of the total shares held by institutions.

However, the REIT has been recovering gradually from  a pandemic-induced operational shutdown. SKT’s payment expected or received value has increased 89.9% sequentially to $87.39 million in the third quarter ended September 30, 2020. Its net rents recognized before reserves and straight-line adjustments have increased 21% from the prior quarter to $89.59 million. Moreover, SKT has maintained a strong liquidity position since the second quarter of last year. As of January 6, the REIT had approximately $80 million in cash and $600 million in unused lines of credit. More than 40% of deferred rents due in  2021 had been collected (as of January 6). As of December 31, 2020, the REIT’s consolidated portfolio occupancy was 91.9%.

Analysts expect SKT’s FFO to rise 103.3% in the current quarter (ending March 31, 2021), and 93.3% in fiscal 2021. A consensus revenue estimate of $390.36 million for the current year represents a 6.1% improvement year-over-year.

SKT has gained nearly 300% since hitting its 52-week low of $4.05 in March last year. The stock hit its 52-week high of $20.96 on January 26.

It is no surprise that SKT is rated Buy in our POWR Ratings system. It has an A for Trade Grade and Peer Grade. In the 41-stock REITs – Retail industry, SKT is currently ranked #14.

The Children’s Place, Inc. (PLCE)

PLCE is a pure-play children’s apparel retailer, operating through two segments – The Children’s Place U.S. and The Children’s Place International. Headquartered in New Jersey, the company has a supply chain across North America. While most of its business is conducted through offline retail chains across the continent, PLCE also maintains an online market presence through its e-commerce website.

The rising popularity of e-commerce platforms have been replacing retail stores globally since the onset of the pandemic. With social distancing protocols resulting in schools remaining closed and thus children confined to their homes, PLCE has remained a favorite of the bears over the past year. The stock has a short float value of 37.5% of its floating shares. Approximately 35.3% of its outstanding shares have been shorted (as of January 14). It has a short ratio of 6.89x.

However, as schools are gradually reopening worldwide , PLCE is well-positioned to make a strong comeback. The mass vaccine deployment in the United States and Canada should accelerate its  revival significantly, allowing PLCE to attain  pre-pandemic operational levels in the near term.

In reporting its  results for the third quarter ended October 31, 2020 results, PLCE’s President and CEO Jane Elfers stated: “Our digital sales penetration increased to 44% in the third quarter and year-to-date, our digital sales represent 55% of total sales. Since the onset of the COVID-19 pandemic in March, we have increased the number of new digital customers versus last year by approximately 100%, converted over 800,000 of our store-only customers to omni-channel customers, and increased our mobile app downloads by over 60% versus last year.” As of October 31, 99% of PLCE’s retail stores in the United States, Canada and Puerto Rico have resumed operations.

PLCE has managed to generate profits in the third quarter, irrespective of the pandemic-driven headwinds. The company reported $425.57 million in revenues over this period. Its net income and EPS were $13.32 million and $0.91, respectively. The company also received an income tax benefit of $16.90 million over the quarter, due to the carryback rules of the CARES Act.

Analysts expect PLCE’s EPS to rise 81.1% in the next quarter ending April 31, 2021. Moreover, the company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $320.46 million for the next quarter represents  an 18.4% improvement versus the same period last year.

PLCE has gained more than 665% since hitting its 52-week low of $9.25 in March. The stock hit its 52-week high of $75 on January 27.

PLCE’s POWR Ratings reflect its  promising outlook. It is rated Strong Buy, with an A for Trade Grade, Buy & Hold Grade and Peer grade, and B for Industry Rank. It is currently ranked #8 of 71 stocks in the Fashion & Luxury industry.

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ASO shares were trading at $21.50 per share on Friday afternoon, up $0.43 (+2.04%). Year-to-date, ASO has gained 3.71%, versus a -1.00% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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