We recently compiled a list of the 10 Most Shorted Stocks That Are Loved by Analysts. In this article, we are going to take a look at where Cabaletta Bio, Inc. (NASDAQ:CABA) stands against the other shorted stocks that are loved by analysts.
Short selling is one of the more controversial ways of making money on the stock market. While typically investors buy and hold stocks with the belief that the price will increase in the future, most short sellers bet against the shares after conducting research that suggests weaknesses within a firm’s business model and fundamentals. Naturally, this leads to detractors of the practice arguing that the very act of revealing a short position can negatively affect the target firm’s share price, while the proponents claim that short selling promotes market efficiency and lets diligent investors capitalize on their research skills.
Additionally, while some of the most famous short sells are of smaller firms, large positions often exist in well known and sizeable companies as well. Data shows that as of April 2024, America’s seven largest stocks with a market capitalization of $13.5 trillion also accounted for 12% of the total short interest in the market. This figure sat at $127 billion, and despite the fact that these big ticket technology stocks have soared in 2024, the short interest also jumped by $18 billion during the year from its value of $109 billion at 2023’s close. In percentage terms, this marked a 17% gain which was noticeably higher than the 5% gain for the tech heavy NASDAQ exchange during the same time period.
Of course, just because the value of short interest has grown doesn’t mean that investors are actually shorting more shares. This is because as the value of the target short rises, so does the short interest due to principles of mark to market accounting which values an asset at its latest market price. Within this $18 billion short interest increase between January to May, the majority, or $11 billion was a mark to market increase while $7.1 billion came through new positions being opened.
For short sellers and those watching the US stock markets, May 2024 was an interesting month. This is because it marked the return of the pandemic era meme stocks. These stocks, such as those that belong to video game retailers or entertainment chains, saw Wall Street and retail investors come head to head over the fate during the pandemic as the latter drove their prices up to inflict losses on the former that had shorted the shares. In May, a fresh note from research firm S3 Partners outlined that positive share price movements of heavily shorted video game retailing stocks ended up dealing a massive $838 million in mark to market losses in a single day to short sellers that were otherwise having a profitable 2024.
For the month, these losses stood at $1.24 billion, and they highlighted the power of the Internet which allows retail investors to team up and battle large institutional players shorting the stocks that they love. However, at the same time, analysts also cautioned that while the recent short squeezes were reminiscent of the mania in 2021, they were unlikely to either last as long or be as forceful due to the tighter monetary policy which makes access to capital difficult and costly.
With these details in mind, let’s take a look at some stocks that have a high short interest but equally high price share price targets, which suggests a difference of opinion between what the markets are doing and what the analysts are thinking.
Our Methodology
To make our list of the most shorted stocks that are loved by analysts, we made a list of stocks with average analyst ratings of Strong Buy, a short interest as a percentage of their float that was greater than 20%, and a market capitalization greater than $300 million. The stocks were ranked based on their average analyst share price target upside.
A scientist wearing lab coats examining a microscope in a modern laboratory.
Cabaletta Bio, Inc. (NASDAQ:CABA)
Short Interest Percentage: 22.71%
Average Share Price Target: $33.56
Share Price Upside: 301.92%
Cabaletta Bio, Inc. (NASDAQ:CABA) is a Pennsylvania based firm developing treatments for immune system diseases. Its primary drug that could end up generating millions in revenue is the CABA-201 drug. This is a T-cell drug that is capable of treating more than one autoimmune disease, such as Myositis. On this front, CABA-201 has had a busy 2024. The drug has received FDA fast track designations for sclerosis and dermatomyositis, an orphan drug designation for sclerosis and myositis, and positive clinical trial data for ‘resetting’ a patient’s immune system. CABA-201 is quite important for Cabaletta Bio, Inc. (NASDAQ:CABA), since the company is a loss making entity that needs drugs to get to the market and generate revenue.
After Cabaletta Bio, Inc. (NASDAQ:CABA) presented the latest set of data for CABA-201’s clinical trial, Citi reaffirmed a $30 share price target and a Buy rating for the shares in May 2024. It shared that the drug’s progress was consistent with performance expectations, and CABA-201 benefits from a robust safety profile. Fred Alger Management mentioned the firm in its Q4 2023 investor letter, citing similar optimism:
“Cabaletta Bio, Inc. (NASDAQ:CABA) is a clinical-stage biotechnology company focused on the discovery and development of targeted cell therapies for autoimmune diseases. The company’s leading candidate, CABA-201, usd a cell therapy approach for the treatment of lupus and myositis, where the U.S. Food and Drug Administration has accepted CABA-201 for New Drug Applications, setting the stage for initial phase 1/2 readouts in the first half of 2024. We believe CABA-201 represents a multibillion-dollar opportunity for the treatment of autoimmune diseases. During the quarter, shares contributed to performance where biotechnology stocks rallied on lower interest rates and several acquisitions, Additionally, the company has reported positive clinical developments throughout the year which encouraged investors to anticipate an effective regulatory pathway to approval in our view.”
Overall CABA ranks 2nd on our list of the most shorted stocks that are loved by analysts. You can visit 10 Most Shorted Stocks That Are Loved by Analysts to see the other shorted stocks that are on hedge funds’ radar. While we acknowledge the potential of CABA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.