Shares of some fundamentally weak stocks have hit record price highs over the past few months due solely to short squeezes triggered by social-media hype surrounding them. Heavily shorted stocks Support.com (SPRT) and SCWorx (WORX) are examples. They are struggling to stay afloat and are highly overvalued at their current price levels. We think that because these two stocks could witness a price pullback soon, they are best avoided now. Read on.Earlier this year, several short squeezes triggered by subreddit r/wallstreetbets wreaked havoc in the financial markets. Shares of struggling companies GameStop Corporation (NYSE:) and AMC Entertainment Holdings (NYSE:), for example, skyrocketed in price, with retail investors betting against hedge funds. This trend is expected to continue because retail traders are expected to gain more influence over the market as sophisticated technology and zero-commission trading platforms gain prominence.
One objective of retail investors is to gain from betting on stocks that are being discussed on numerous social media platforms and might experience a short squeeze. However, while short squeezes can lead to eye-popping rallies in many stocks, those companies that have weak business models or other fundamental weaknesses should eventually see a pullback.
Short squeeze candidates Support.com Inc. (SPRT) and SCWorx Corp. (WORX) seem to have garnered significant attention lately in the ongoing retail trading frenzy. However, due to their weak financials and bleak growth prospects, these stocks are overvalued at their current price levels. Hence, we think they are best avoided now.
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