I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.
If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.
With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.
My first earnings short-squeeze trade idea is specialty retailer Conn's (CONN) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Conn's to report revenue of $413.12 million on a loss of 7 cents per share.
The current short interest as a percentage of the float for Conn's is extremely high at 33%. That means that out of the 18.84 million shares in the tradable float, 6.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.2%, or by about 252,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears run to cover some of their positions.
Another potential earnings short-squeeze play is entertainment and dining venues operator Dave & Buster's Entertainment (PLAY) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Dave & Buster's Entertainment to report revenue of $243.14 million on earnings of 44 cents per share.
The current short interest as a percentage of the float for Dave & Buster's Entertainment is pretty high at 12.1%. That means that out of the 38.47 million shares in the tradable float, 4.67 million shares are sold short by the bears.
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