So we've now seen the GameStop Corp (NYSE: GME) share price multiply 2300% in just 2 weeks after a short squeeze attack from Reddit-driven retail investors.
The bubble has now deflated somewhat since its mad highs. But last week there was much interest when an Australian finance academic picked three heavily shorted ASX shares that could similarly explode.
Now, a fund manager has identified three more ASX shares that are highly shorted but have excellent upwards potential.
Injustices in share markets
Shaw and Partners portfolio manager James Gerrish wrote in his Market Matters (MM) investor newsletter this week that the GameStop episode has taught him two lessons.
"Slowly but surely the playing field for retail investors is becoming more equitable, which is a great thing and something MM has always been passionate about," he said.
"Never underestimate the power of social media, it's here to stay and will get stronger."
The industry reacted with the view that the GameStop short squeeze was "wrong" and that future episodes should be prevented with regulation.
This attitude manifested in the rescue of devastated short seller Melvin Capital and trade blocks placed on retail investors by platforms like Robinhood and IG.
The idea that it's okay for professional short sellers to make billions from the misery of others but they must be protected from losing billions is absurd, according to Garrish.
"The rules feel inequitable in markets at times," he said.
"Why can hedge funds freely trade in stocks when retail traders are blocked?"
Gerrish reckons locally three ASX shares have the potential to be short squeeze targets.
"While we won't be buying stocks due to their short position, in a similar fashion to a potential takeover target it does add some nice icing on the cake when we balance the risk-reward."
InvoCare Limited (ASX: IVC)
Funeral industry heavyweight InvoCare has 8% of its shares shorted, according to Gerrish.
A new chief executive has started at the company, which could mean fortunes could go either way. But the volume of trading in InvoCare shares should have short sellers very concerned.
"To put this short position into perspective it will take around 30 days to cover at the current average daily volume," Gerrish said.
"That would make me very concerned as a trader, especially after the shares have already declined ~40% due to concerns around increasing competition."
Gerrish deemed InvoCare a "potential recovery story".
"MM didn't consider buying yesterday but I definitely wouldn't be short."
The InvoCare share price was down 2.37% to $11.54 by Thursday's close.
Tassal Group Limited (ASX: TGR)
Tassal, short for Tasmanian Salmon, is a fish farming company with a 12.4% short position.
This percentage is very high by ASX standards. GameStop had 140% of its shares shorted, but that is very rarely seen in Australia.
The market is anxious about how Chinese trade difficulties could impact the seafood producer, according to Gerrish.
"The combination of insider buying in December and a 5% part-franked yield are the main reasons we wouldn't be short[ing] this stock,"
"In fact, we would be more inclined to accumulate into current weakness as opposed to short."
Tassal shares closed flat at $3.40 on Thursday.
AVITA Medical Inc (ASX: AVH)
The medical technology company Avita is carrying a significant 8.4% short position, said Gerrish.
"[Short] traders believe COVID will hinder the companies [sic] growth prospects this year following a tough 2020."
But in the middle of last month Avita delivered financial results boasting more than 50% growth in quarterly revenue.
"The risk/reward looks attractive for traders with stops under $6."
Avita shares closed 0.42% higher on Thursday afternoon, going for $7.20.
