Is This Heavily Shorted Stock Set To Squeeze Bears?
Despite succeeding in the rough and tumble world of HR management, one particular firm has also become one of the most heavily shorted stocks in the market.
Yet beneath the surface, there are signals that the stock could be on the verge of a sharp rebound—perhaps even a short squeeze that will catch many off guard.
Key Points
- Dayforce is growing 17% annually, with significant growth abroad in under-penetrated markets.
- Analysts see up to 45% upside as Dayforce nears profitability, outpacing competitors like Workday and ADP.
- With 15% of shares shorted, a positive catalyst may well trigger a sharp rise in the stock price.
Solid Growth, Strong Client Base
This company has been delivering solid growth, including a 15.7% year-over-year increase in revenue in its most recent quarter, driven by surging demand for its cloud-based human capital management software.
The platform is gaining traction among mid-size and large enterprises, with a client base that includes some of the world’s largest brands.
What’s even more surprising is that many investors overlook the fact that this stock is on track to break into profitability within the next two years, potentially swinging the narrative from loss-making to a cash-generating machine.
Short Sellers Target Dayforce
Short sellers have targeted Dayforce aggressively, citing concerns about valuation and competition in the crowded HCM software space but there are key elements they may be missing.
For one, Dayforce’s growth is accelerating in international markets—particularly in Europe and Australia—where the company has only scratched the surface of market penetration.
This overseas growth avenue may well be a key factor in driving the stock higher, as Dayforce broadens its global footprint.
Cloud-Based Solutions Are the Future
Another overlooked point is the increasing trend among corporations to adopt cloud-based solutions for managing payroll, employee benefits, and compliance.
Ceridian, the parent company of Dayforce, is in a good spot to benefit from this shift. Its AI-driven features, designed to streamline workforce management, have proven popular among companies trying to reduce administrative overhead.
Furthermore, Dayforce’s recurring revenue model is highly sticky, with renewal rates eclipsing 90%, and highlighting that customer satisfaction and retention are high.
Is Dayforce Undervalued?
From a financial perspective, Dayforce is trading at roughly 2.1x LTM sales, which might seem steep at first glance but revenue growth rates more than justify the premium.
Some analysts have bullish price targets as high as $90 per share, suggesting around 44% upside from current levels.
Some more bullish estimates peg the target as high as $95, representing a potential 38% increase.
This optimism derives from expectations that Dayforce will continue to grow both its revenue and margin base, leading to improved operating leverage and the transition to positive free cash flow.
The Short Squeeze Opportunity
With more than 15% of the stock’s float currently shorted, any positive catalyst, whether a major new client win, a blowout earnings report, or an upward revision in guidance may well force short sellers to cover their positions en masse. .
A single earnings surprise could easily trigger a rush to exit short positions, driving the stock price significantly higher in a short period.
So, what could act as a catalyst? The company’s next earnings report may well reveal continued success in international markets and improved margins from recent cost-cutting initiatives.
Plus, the looming profitability milestone is another factor that could draw attention from growth-oriented investors, causing short sellers to reassess their positions.
A Miscalculation by Short Sellers?
With strong underlying fundamentals, international growth potential, and a likely path to profitability, the stock has significant upside.
Add in the potential for a short squeeze, and Dayforce could soon find itself making headlines for all the right reasons.
