Faraday Future (NASDAQ: FFIE), an electric vehicle (EV) maker, has recently become part of the meme stock frenzy. With 95% of its stock being held short, Faraday is a prime candidate for a short squeeze, which is what meme stock trades are all about.
On May 14, small traders drove Faraday’s shares up 367% in an effort to squeeze out the shorts. The stock doubled again overnight. However, despite these gains, the underlying business is still struggling, with the stock being valued at under $24 million.
Faraday went public through a Special Purpose Acquisition Company (SPAC) in 2021, but by December 2022, it had lost 98% of its value. The company has faced challenges such as changing management and producing luxury EVs that were no longer in demand. Despite these issues, investors saw an opportunity to profit from Faraday’s decline by selling short.
While buying Faraday’s stock may seem risky, the focus for many investors is on taking advantage of the short squeeze potential. As sentiment remains bullish, with expectations of the stock reaching $1 or even $2 per share, it’s important to remember that at some point, the music will stop. When shorts begin to exit their losing positions, it may be time to consider exiting the trade, as Faraday’s future as a company remains uncertain.
It’s worth noting that InvestorPlace typically does not publish commentary on companies with a market cap of less than $100 million or low-volume stocks, due to the risks associated with such investments. As always, it’s important to exercise caution when trading in these types of stocks.