The volatile moves and significant gains for heavily shorted stocks like GameStop and Bed Bath & Beyond have sent some on Wall Street hunting for the next stock that could be the subject of a short squeeze. Technology analysts at Baird Equity Research identified the stocks in their coverage area with the highest short interest, and then sent a note to clients naming the stocks with attractive risk-reward profiles. Short interest measures the amount of shares that are sold short relative to a company's total available float of stock. GameStop's short interest surged above 100% at one point. Among software-as-a-service companies, Baird said in the note that Medallia , with roughly 23.4% short interest was a smart buy. The stock is one of the firm's top picks in the small and mid cap group for 2021. "The rise in short interest comes on the heels of SAP's announcement of its intention to spin off MDLA competitor Qualtrics. We view the 'Experience' market as big enough to support two scaled players," the note said. For more consumer-oriented names, Baird selected Carvana and Corsair Gaming, which have short interest of 25.7% and 31.8%, respectively. "In particular, we remain constructive on both CVNA and CRSR, two of the highest-shorted stocks in the market, as they continue to benefit from positive long-term secular growth trends," the note said. Another software stock on the list was cloud communications company Bandwidth . Baird said in the note that it was bullish on Bandwidth's recent acquisition of London-based cloud company Voxbone, and the firm's $200 per share price target was about 16% above where the stock was trading on Tuesday. Bandwidth has short interest of 20.8%, according to the note. A short squeeze refers to the phenomenon where a sharp move higher for a stock causes dealers and traders who are short the stock to cover their positions, creating more demand. Market experts have pointed to a short squeeze as part of the reason for GameStop's dramatic move higher , as retail traders target heavily shorted stock to try to create that feedback loop.
