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 Scholar Rock Holding Corporation (NASDAQ:SRRK) 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 holding a flask of liquid in a laboratory, highlighting the research and discoveries of new treatments.
Scholar Rock Holding Corporation (NASDAQ:SRRK)
Short Interest Percentage: 21.90%
Average Share Price Target: $27.43
Share Price Upside: 223.05%
Scholar Rock Holding Corporation (NASDAQ:SRRK) is a biotechnology firm developing treatments for anemia, muscular atrophy, and cancer. The firm is currently in the early stages of its development pipeline, which means that it is a loss making entity that does not earn either revenue or a profit. Naturally, this means that the prospects for Scholar Rock Holding Corporation (NASDAQ:SRRK) to soar on the stock market are rather low despite the fact that the firm sought to cash in on the weight loss drug trend at its investor day in May 2024. This saw Scholar Rock Holding Corporation (NASDAQ:SRRK) announce a proof of concept trial of a myostatin inhibitor for patients currently being treated with GLP-1 inhibitors. Myostatin inhibitors encourage muscle growth, but the announcement failed to inject any life into Scholar Rock Holding Corporation (NASDAQ:SRRK)’s shares that are down 51% year to date.
Scholar Rock Holding Corporation (NASDAQ:SRRK) is currently counting on the phase 3 trial of its muscular atrophy treatment called Apitegromab. Phase 3 SAPPHIRE trials are scheduled for the fourth quarter, and the firm hopes to commercially launch the product next year pending approval. Should a commercial launch be successful, it will allow Scholar Rock Holding Corporation (NASDAQ:SRRK) to earn revenue but that might not be enough to impress investors.
Overall SRRK ranks 5th 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 SRRK 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 SRRK 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.