What happened

Cannabis stock Agrify (AGFY 1.30%) went off on a wild roller coaster Thursday, plunging double digits soon after the markets opened, then recouping all those losses, only to tumble 9.1% again by the close of trading today.

It's been one heck of a week for Agrify so far, with an analyst positing a huge price target on its shares, and the stock surging by double digits on Aug. 18 on heavy volumes. Is it a short squeeze? Possibly.

So what

Almost 1.2 million shares of Agrify were held short as of July 30 versus only 600,000 a month ago. That's the perfect setting for a stock to soar as short-sellers race to exit their positions, driving the stock higher. That's the only reasonable explanation why Agrify shares soared almost 24% on Aug. 18 and were swinging in all directions today. A stock, especially a small cap, is typically volatile on such days.

A confused person looking at his phone with computer screens displaying stock price charts in the background.

Image source: Getty Images.

To Agrify's credit, stellar numbers from the company have also driven the stock higher recently. Days ago, Agrify reported record second-quarter numbers, including:

  • 203% year-over-year growth in revenue to $11.8 million.
  • 23% sequential growth in backlog value to $101.1 million.
  • Gross profit of $500,000.

Agrify's losses widened substantially, but that's expected of a young company trying to gain a foothold in its industry. Its core product, Agrify vertical farming units (AVFUs), aims to help cannabis cultivators grow crops indoors. The company also licenses software solutions under subscription plans.

In the second quarter, Agrify bagged its first customer for its newly launched service, the Total Turn-Key (TTK) Solution, which provides end-to-end solutions to customers. It also struck a research and development partnership with integrated pot company Curaleaf Holdings in July, and management said during its second-quarter earnings call that it is in talks with several other multi-state operators.

A strong quarter encouraged an analyst at Maxim to raise his price target to $40 a share from $22 earlier this week.

Now what

I'm wary of stocks targeted by short-sellers or traders, but Agrify is a notable exception. The fact that this company is growing its backlog and revenue, supported by a product that's finding takers (it has already signed a second TTK customer) is intriguing. I first put the stock on my radar in July, and it's surged more than 50% since. But I'm reiterating my view given that management now expects to hit the upper end of (or even exceed) its full-year revenue guidance range of $48 million to $50 million.