3 Small Cap Stocks That Are Short Squeeze Candidates

Low float stocks can be some of the most volatile stocks in the market. If you mix in a short squeeze, the potential short-term gains in a low float stock can be extreme.

A stock's float is the number of shares that trade freely on the public market. Because insiders and institutional investors don’t typically trade their shares on a daily basis, those shares don’t typically contribute to a stock's near-term liquidity.

Float is the number of shares that remain after accounting for insider and institutional ownership.

Why Is It Important? When a stock gains positive momentum in the market, momentum buyers can rush in all at once. If a stock has a high short interest, short covering can quickly ramp up demand for shares, triggering a short squeeze. Since low float stocks have relatively few shares trading freely, a major imbalance in supply and demand can serve as rocket fuel for the share price.

Buying a low float stock with high short interest isn’t a guarantee of a short squeeze. There still typically needs to be some form of catalyst to get the stock moving in the first place. However, traders can keep an eye on these stocks for any signs of life to try to catch most of a potential big move.

Short Squeeze Candidates: Here are three small-cap stocks that have all the ingredients for a short squeeze.

Related Link: 3 Short Squeeze Candidates In The Real Estate Sector

Prometheus Biosciences Inc RXDX
Prometheus Biosciences is a biotechnology company focused on therapies and diagnostic products for the treatment of inflammatory bowel disease (IBD). The stock completed its IPO in March and is also the perfect short squeeze candidate among small-cap stocks.

Prometheus’ 970,000-share float is minuscule, creating plenty of opportunity for extreme volatility if trading volume rises. Prometheus also has 30.2% of its float held short, a fairly high short percent of float.

Finally, the stock has already demonstrated its potential for extreme volatility. Benzinga included Prometheus in a list of biotech short squeeze candidates back on May 6. On May 17 and 18, the stock rocketed from under $17 to as high as $27.80 in just two days.

World Acceptance Corp. WRLD
World Acceptance is a small-loan consumer finance company that specializes in small installment, short-term loans. The stock demonstrated its volatility potential in January when it ripped from $110 to as high as $170.98 in a period of just three trading days.

With a float of just 2.93 million shares and a short percent of float of 22.8%, World Acceptance has plenty of short squeeze rocket fuel in its tank.

Genetron Holdings Ltd - ADR GTH
Genetron is a Chinese precision oncology platform that specializes in cancer molecular profiling.

Genetron has a float of just 3.2 million and a short percent of float of 21.4%. The stock also has a history of extreme volatility. From late December 2020 to early February 2021, Genetron’s stock price surged from $12.44 to as high as $31.54.

Short squeeze traders have frequently targeted stocks trading under $5 per share this year, and Genetron’s shares currently trade at $19.04.