Earlier this year, several short squeezes triggered by subreddit r/wallstreetbets wreaked havoc in the financial markets. Shares of struggling companies GameStop Corporation (GME) and AMC Entertainment Holdings (AMC), 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 – Get Rating) and SCWorx Corp. (WORX – Get Rating) 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.
SPRT offers customer and technical support solutions primarily through home-based employees in the United States. It provides outsourced customer support and cloud-based technology platforms to clients in verticals, such as media and communication, healthcare, retail, and technology. In addition, the company provides SUPERAntiSpyware software, malware protection, and removal software packages; Guided Paths, a step-by-step self-help tutorial; and service delivery management solutions for technical support services. Approximately 41% of SPRT’s floating shares have been sold short.
Last month, WeissLaw LLP started investigating possible breaches of fiduciary duty and other regulatory violations by the board of directors of SPRT in connection with the company’s proposed merger with Greenidge Generation Holdings Inc.
SPRT’s total revenue declined 11.6% year-over-year to $8.51 million in the second quarter, ended June 30, 2021. Its operating loss came in at $849,000 over this period. The company reported a $799,000 net loss, while its loss per share amounted to $0.03.
In terms of its trailing-12-months Price/Sales, SPRT is currently trading at 14x, which is 219.4% higher than the 4.38x industry average. Also
, in terms of trailing-12-twelve-months EV/sales, the stock is currently trading at 15.37x, which is 242% higher than the 4.49x industry average.
SPRT’s POWR ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SPRT has rated an…
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