Skillz Stock Not Yet in AMC, GameStop Territory, But Still Prime Short Squeeze Candidate

Posted on: June 9, 2021, 10:34h. 

Last updated on: June 9, 2021, 10:51h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Skillz (NYSE:SKLZ) hasn’t yet reached the rarefied air of meme stocks such as GameStop (NYSE:GME) and AMC Entertainment Holdings (NYSE:AMC). But the mobile games platform provider has some of the same ingredients that drove those names to big gains and notoriety.

Skillz stock
The WallStreetBets logo. Skillz may join the ranks of heavily shorted meme stocks. (Image: MarketWatch)

Skillz is heavily shorted and it’s starting to rally. Last week, the company said it’s acquiring online advertising firm Aarki for $150 million. Over that period, the shares are higher by nearly 36 percent, though most of those gains were confined to a 27 percent pop last Wednesday.

That extends Skillz stock’s gain to almost 47 percent over the past month — good for one of the best performances in the gaming equity complex over that span, and perhaps enough to get bearish traders jittery about their positions.

In fact, Skillz is highlighted as a prime candidate for a short squeeze. That’s the scenario when a heavily shorted stock rallies, forcing bearish traders to cover positions — squeezing them out — thereby sending the stock higher.

Recent data from short interest analytics provider S3 Partners indicates Skillz is among 10 stocks scoring a perfect 10 on the firm’s “Squeeze Score” metric in terms of short squeeze candidacy.

Skillz Stock Meme Comparisons

The phrase “meme stock” was born from the Reddit forum WallStreetBets, or WSB in social media lingo, and the impact that group of rebellious retail traders is having on stocks such as GameStop and, more recently, AMC.

The rallies in the previously moribund video game retailer and downtrodden movie chain operator stoked speculation about what stocks the WallStreetBets cartel will focus on next. For its part, Skillz has some catching up to do to enter the pantheon of the group’s favorite names. As just two examples, AMC is up a staggering 478 percent over the past month, while Clover Health Investments (NASDAQ:CLOV) — another name on the S3 list — nearly tripled over the past week.

Still, Skillz fits the bill as a name traders could target in hopes of spurring a short squeeze. As of May 14, 73.18 million shares of the gaming company, nearly 31 percent of its float, were on loan to bearish traders, according to Dow Jones data.

Other Similarities

Besides the obvious of elevated short interest, Skillz shares something else in common with several of the names on the S3 list: It came to market via a reverse merger with a special purpose acquisition company (SPAC).

That’s the case with Clover Health, Virgin Galactic (NYSE:SPCE), and Nikola (NASDAQ:NKLA). Meaning that when Skillz is included, four of the 10 short squeeze candidates highlighted by S3 became public companies via blank-check deals.

While SPACs were all the rage on Wall Street and among retail investors last year and into the early part of 2021, the market has cooled considerably for these transactions. That’s because many of the companies born out of blank-check deals debuted with allegedly weak financials, making them ideal targets for short sellers.

How all this shakes out for Skillz, and if it becomes a true meme stock remains to be seen. But the recent momentum has the shares flirting with $25 for the first time in nearly three months.