Individuals investing in the digital gaming stock Skillz (SKLZ) have seen considerable volatility throughout this year. The shares of this company started the year lower than $20. Wolfpack Research accused the stock of being slightly more than a pump-and-dump scheme earlier this year. By that time, it had already declined from highs by more than 44%.
The stock has witnessed multiple spikes, and presently there are several catalysts that can serve to propel it upwards rapidly. Despite the volatile nature of the Skillz stock, there have been discussions going around that this stock is a potential millionaire maker. I remain neutral on Skillz stock right now, given these factors.
(See Skillz stock charts on TipRanks)
Is a Short Squeeze on the Way for SKLZ Stock?
Retail investors have made a ton of money going after short sellers of late. These retail speculators have taken to targeting stocks with high levels of short interest and high borrow fee rates. By doing so, any upward spike can squeeze short sellers out of their positions, forcing short sellers to buy to cover their position. This can cause a massive short-term rally in a given stock’s price.
Accordingly, the closely-watched metrics many investors are interested in right now many be bullish for SKLZ stock. The company remains highly shorted, and is expensive for short sellers to hold onto. Accordingly, there’s a speculative element with SKLZ stock that has resulted in a previous squeeze to more than $46 per share earlier this year.
Currently, investors can pick up shares of SKLZ stock at around the $11 level, suggesting another squeeze to previous levels could bring a 4-bagger in an ultra-bullish environment for squeeze plays.
Will another squeeze play out? That’s the question many investors are asking right now. Momentum seems to be muted, though there’s certainly a strong group of retail investors holding onto this idea right now.
Mixed Results and Acquisitions of Skillz
One of the reasons Skillz has seen momentum wane of late has been the company’s mixed financial results, reported of late.
Despite showing rather robust growth this past quarter (52% year-over-year), the company’s net loss almost quadrupled. Skillz reported a net loss of $79.8 million this past quarter, compared to $20.2 million during the same quarter a year ago.
This massive loss is notable, considering the company’s gross margins remain high. Skillz reports a 95% margin on its revenues, which is quite substantial. However, various costs associated with growing the company’s business have muted the near-term bottom line results for Skillz.
Indeed, as a hyper-growth play, many investors may not expect (or even want) Skillz to be profitable right now. Growth is the key. And in this regard, the company is performing well.
However, there are also concerns that losses like these may require additional capital raises on the horizon. Indeed, given the fact that Skillz is looking to accelerate its growth via partnerships and acquisitions, this reality is even more likely right now.
Recently, Skillz announced the acquisition of Aarki, which brings an additional 465 million users into the company’s fold. This deal will hopefully enable Skillz to bring in new users in a more efficient manner. Skillz anticipates that this acquisition will enhance revenues by $13 million. This, in turn, has allowed Skillz to bump up their revenue forecast to $389 million for 2021.
Skillz also engaged in two recent crucial partnerships in Q2 – one with Exit Games and the other with the NFL. These deals are expected to bring more awareness and excitement to the Skillz brand.
What are the Analysts Saying about SKLZ Stock?
According to TipRanks’ analysts rating consensus, Skillz is a Moderate Buy. Out of 5 ratings, there are 3 Buy recommendations and 2 Hold recommendations.
The average Skillz price target is $19.00. Analyst price targets range between a low of $15 per share to a high of $25 per share.
Bottom Line
Going after short squeeze opportunities in this market has proven to be a difficult task. Indeed, timing these short-term bets can be the most difficult task. As a rule, that’s a strategy best taken by experienced professionals with money to gamble.
Longer-term investors may want to steer clear of these momentum plays right now. The upside swings these stocks see also bring significant downside risk. Accordingly, SKLZ stock is one investors may want to be cautious with right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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