We recently compiled a list of the 10 Most Shorted Stocks That Are Loved by Analysts. In this article, we are going to take a look at where 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT) stands against the other shorted stocks that are loved by analysts.
Short selling is one of the more controversial ways of making money on the stock market. While typically investors buy and hold stocks with the belief that the price will increase in the future, most short sellers bet against the shares after conducting research that suggests weaknesses within a firm's business model and fundamentals. Naturally, this leads to detractors of the practice arguing that the very act of revealing a short position can negatively affect the target firm's share price, while the proponents claim that short selling promotes market efficiency and lets diligent investors capitalize on their research skills.
Additionally, while some of the most famous short sells are of smaller firms, large positions often exist in well known and sizeable companies as well. Data shows that as of April 2024, America's seven largest stocks with a market capitalization of $13.5 trillion also accounted for 12% of the total short interest in the market. This figure sat at $127 billion, and despite the fact that these big ticket technology stocks have soared in 2024, the short interest also jumped by $18 billion during the year from its value of $109 billion at 2023's close. In percentage terms, this marked a 17% gain which was noticeably higher than the 5% gain for the tech heavy NASDAQ exchange during the same time period.
Of course, just because the value of short interest has grown doesn't mean that investors are actually shorting more shares. This is because as the value of the target short rises, so does the short interest due to principles of mark to market accounting which values an asset at its latest market price. Within this $18 billion short interest increase between January to May, the majority, or $11 billion was a mark to market increase while $7.1 billion came through new positions being opened.
For short sellers and those watching the US stock markets, May 2024 was an interesting month. This is because it marked the return of the pandemic era meme stocks. These stocks, such as those that belong to video game retailers or entertainment chains, saw Wall Street and retail investors come head to head over the fate during the pandemic as the latter drove their prices up to inflict losses on the former that had shorted the shares. In May, a fresh note from research firm S3 Partners outlined that positive share price movements of heavily shorted video game retailing stocks ended up dealing a massive $838 million in mark to market losses in a single day to short sellers that were otherwise having a profitable 2024.
For the month, these losses stood at $1.24 billion, and they highlighted the power of the Internet which allows retail investors to team up and battle large institutional players shorting the stocks that they love. However, at the same time, analysts also cautioned that while the recent short squeezes were reminiscent of the mania in 2021, they were unlikely to either last as long or be as forceful due to the tighter monetary policy which makes access to capital difficult and costly.
With these details in mind, let's take a look at some stocks that have a high short interest but equally high price share price targets, which suggests a difference of opinion between what the markets are doing and what the analysts are thinking.
Our Methodology
To make our list of the most shorted stocks that are loved by analysts, we made a list of stocks with average analyst ratings of Strong Buy, a short interest as a percentage of their float that was greater than 20%, and a market capitalization greater than $300 million. The stocks were ranked based on their average analyst share price target upside.
An ophthalmologist performing an eye examination on a patient with the latest medical equipment.
4D Molecular Therapeutics, Inc. (NASDAQ:FDMT)
Short Interest Percentage: 21.99%
Average Share Price Target: $52.3
Share Price Upside: 129.59%
4D Molecular Therapeutics, Inc. (NASDAQ:FDMT) is a small biotechnology company developing treatments for lung diseases, macular degeneration, and other ailments. It's one of the few stocks on our list that is actually up year to date. This is courtesy of an 84% share price jump in February. This came after 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT)'s gene therapy treatment for eye disease that causes spots in older adults. The treatment is called 4D-150, and 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT) had shared that high doses of the drug reduced injection rates in patients. The next set of data for 4D-150 came in June when 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT) shared that a dose escalation trial led to stable visual acuity in patients.
BMO Capital's bullish note in June 2024 focused on another 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT) treatment. This treatment is 4D-710, a gene treatment for lung fibrosis. BMO shared that while it's possible that 4D-710 is a safe and effective treatment, it is not relevant to 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT)'s valuation. The firm kept an Outperform rating on the shares and a $63 share price target.
Overall FDMT ranks 9th on our list of the most shorted stocks that are loved by analysts. You can visit 10 Most Shorted Stocks That Are Loved by Analyststo see the other shorted stocks that are on hedge funds’ radar. While we acknowledge the potential of FDMT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FDMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
