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 Sigma Lithium Corporation (NASDAQ:SGML) 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 mining truck hoding a payload of mineral ore, a visual representation of the companies resources.
Sigma Lithium Corporation (NASDAQ:SGML)
Short Interest Percentage: 25.53%
Average Share Price Target: $37.36
Share Price Upside: 204.98%
Sigma Lithium Corporation (NASDAQ:SGML) is a Canadian lithium mining company with operations in Brazil. It is a loss making stock that reported its first revenue in several years in 2023 by bringing in C$181 million in sales. This naturally raises the stakes for Sigma Lithium Corporation (NASDAQ:SGML), as short sellers are eager to pounce on any weakness in the stock in case its revenue growth slows down. While initially analysts had expected the firm to breakeven and post a profit of C$82 million in 2025, which left plenty of room for a share price drop this year in case of slowing growth, May 2024 came with a significant downward revision for the year’s revenue but a new profitability estimate. This saw analysts cut their 2024 revenue guidance to C$354 million from $605 million, but also C$0.61 in earnings per share. While it marked a downward revision for the revenue, the earlier EPS estimate was C$0.42.
Sigma Lithium Corporation (NASDAQ:SGML) has also had a troubled history with management shakeups spooking investors. Its fate is tied to lithium production, and its shares soared by 11% in the first week of April after it shared plans of a $100 million investment in Brazil to increase output to 520,000 metric tons in 2025 from an earlier estimate of 270,000. Another key factor for the stock is the firm’s ability to manage lithium pricing. Its CEO commented on this trend during the latest earnings call where she shared:
We are extremely enthusiastic about our prospects as we have been advancing towards key catalysts of our plan to double production capacity by 2025. The four key deliveries of this quarter were fast, the delivery of an increased premium pricing where we achieved a fixed floating formula of 9% of the London Metals Exchange Lithium equivalent, basically reaching a $1,290 pricing. That represents an 11% increase to the April 24, realized pricing up the numbers we released for the first quarter of 2024. So that clearly demonstrates that the pricing trend is upwards.
An 11% increase from previous months and an overall almost 30% increase from the average pricing of the previous quarter.
Overall SGML ranks 6th 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 SGML 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 SGML 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.
