Why Aterian Is the Top Short-Squeeze Stock Pick for May

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Software platform Aterian  (ATER) – Get Aterian Inc Report was the top short-squeeze target for April. Retail investors piled into the stock, increasing its trading volume and handing short sellers heavy losses.

But we believe May could be another eventful month for Aterian stock. Here’s why.

Figure 1: Why Aterian Is the Top Short-Squeeze Stock Pick for May

Aterian’s Facebook page

Why Aterian Became a Short-Selling Target

Since last August, the Aterian ticker has been popping up on Reddit’s stock discussion forums. Reddit investors have been drawn to the stock because of a bearish Culper Research report that has drawn short interest. The report, which was released in May 2021, claimed that Aterian was an “overhyped artificial intelligence” story and implied that the company had made “garbage” acquisitions.

“[W]e believe that there are serious problems with Aterian’s claims to maintain strong organic growth and to drive M&A synergies: To us, neither of these appears to be the case… In our view, this suggests not only that Aterian is unable to grow EBITDA at acquired businesses, but that its core business is also failing to produce,” Culper Research said.

Following the release of the report, Aterian shares plummeted nearly 80% between May and August. Then retail investors realized that Aterian was an easy short-squeeze target, sending its shares up 400% from August to September.

In November 2021, Aterian CEO Yaniv Sarig also further aroused retail attention due to a tweet implying that Aterian stock was being targeted for naked shorting irregularities:

After that, the stock went into freefall model until last month, when again ATER trended among the investing subreddits.

Figure 2: Trending stocks on Reddit, May 3.


ATER’s Journey to the Moon

During April, Aterian stock was probably the most popular short-squeeze play of the month, as indicated here on this channel. Aterian ended the month up almost 120%.

ATER’s share price surged due to a convergence of factors. Aterian was one of the most mentioned tickers on the main stock and investing subreddits in April. It beat out other meme stocks like GameStop  (GME) – Get GameStop Corp. Class A Report and AMC  (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report and large-cap companies like Apple  (AAPL) – Get Apple Inc. Report and Tesla  (TSLA) – Get Tesla Inc Report.

On top of this, Aterian stock is among the stocks with the highest reported short interest in the market. Although the numbers are lower than the 23% short float it reached last September — when the first short squeezees on ATER occurred — Aterian stock had a short interest of 17% as of April 14. That indicated some 10.46 million shares were being shorted.

In addition, Aterian announced in March that there were about 7 million warrants remaining at an exercise price of $3.20 that could not be exercised within the next six months. This made many retail investors opt to bet on Aterian stock once the risk of short-term dilution was contained, unlike other popularly discussed short-squeeze plays such as Vinco Ventures  (BBIG)  and Progenity  (PROG) .

Will the Saga Continue in May?

There’s a good chance that the momentum play on Aterian stock will extend for some time. Short sellers continue to bet more and more against the stock. In the first half of April alone, short interest rose 13.5%.

Aterian has more attention from retail investors and Reddit forums than ever before, especially now that it is proving to be a solid short-squeeze play. In April alone, it traded over 1 billion shares in volume, considering a modest 26.7 million float. See the chart below.

Figure 3: Aterian stock trading volume on April.

Data from Yahoo Finance

The stock follows at a utilization rate of 100%, reached since the beginning of April. This could be a positive sign for further short squeezes to occur, as short sellers find it increasingly difficult to find available shares to short when strong volume increases are likely to occur.

Whether the saga will continue or not, only time will tell. However, Aterian stock continues to indicate that more short-squeeze activity is yet to come.

It’s worth remembering that, even though the stock rose over 120% in April, year-to-date ATER is trading up only 20%. If you look at a one-year time frame, shares are still down 75%. Therefore, there is still a long road ahead before the action reaches its peak again. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)