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Aterian (NASDAQ:ATER) stock is the latest meme play to become one of the most popular stocks among Reddit traders.  Its appeal is mainly due to its status as a short-squeeze play. It also doesn't hurt that the company's business description includes many buzzwords.

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Aterian, formerly known as Mohawk Group, uses artificial intelligence and machine learning to power its e-commerce platform. Operating in an up-and-coming arena, it has generated solid revenue growth in recent years. What it hasn't reported, however, is profits. Since it's still growing its business, only now is it starting to get out of the red.

For investors with a high tolerance for risk who believe that the meme/short-squeeze trend isn't completely over, taking a small, speculative position in ATER stock  may be worthwhile. That's because the shares may be poised to spike once more in the near-term.

Why Reddit Fans Are Thrilled With ATER Stock

Short squeezing is an integral  part of the meme-stock phenomenon. Short squeezes drove AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) to prices well above their actual value. Also driven by short selling were the brief rushes into Clover Health (NASDAQ:CLOV), ContextLogic (NASDAQ:WISH), and Greenidge Generation's (NASDAQ:GREE) predecessor, Support.com (NASDAQ:SPRT), during the summer.

Earlier this month, short selling was the main driver of ATER stock. During that time, the shares zoomed from around $7.40 per share  to as much as $19.10 per share.

Much of the Reddit set hopped aboard Aterian, which was seen as the next "to the moon" play. Unfortunately, those who bought its shares too late have made fast losses instead of fast profits, as the shares have tumbled back  to around $10 per share.

That said, it may be too soon to say the "squeeze is over" for Aterian. As of Sept. 15, around 19.5% of its outstanding float was held by short sellers. But as its short volume has remained high in recent days, more of the "smart money" looks to be doubling down on their shorting of the name. As a result, it continues to have potential as a squeeze play.

More importantly, chatter about it on Reddit's r/WallStreetBets subreddit has yet to cool. Having high short-interest is only one piece of the equation to become a successful meme stock. Stocks also need large-scale buying to trigger a true squeeze.

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Because the hype of ATER stock remains high, it has a good chance of squeezing again in the short-term. Consequently, it may be a good name to trade. Keep in mind though, that, in light of other factors, no one should hold onto the shares for a long amount of time.

A Trading Opportunity and Red Flags

There's merit to buying ATER stock as a bet on meme traders' psychology. But when it comes to investing in the shares over the long-term,  like many small-cap meme stocks, Aterian has many red flags.

As I hinted earlier, its lack of profitability poses a risk. As a Seeking Alpha contributor recently pointed out, between the company's breaches of its debt covenants and its continued need for cash to grow its business, Aterian will end up materially diluting  shareholders by issuing new shares. And more outstanding shares will make it easier for those shorting the stock today to cover their positions.

Second, as another InvestorPlace columnist, Stavros Georgiadis, mentioned in his recent article on the stock, the company has resorted to a "shareholder perks" program in order to spark additional interest in its shares. Basically, if you own 100 or more shares of ATER stock, you can get exclusive discounts on the company's products.

That may not be the main factor driving traders' interest in the name. Yet the fact that it's employing such methods is a sign that, despite its share price, this name has more in common with your garden-variety penny stocks than it does with up-and-coming e-commerce plays. In short, both these factors hint that, in time, the shares will decline substantially.

The Bottom Line

In some ways, Aterian appears to be a stock that no one should touch. Nevertheless, those looking for one last trading opportunity before a much-feared stock market correction finally happens may find its shares appealing.

Since it remains popular with Reddit traders and its short interest is still high, ATER stock may have room for one last pop in the short-term.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com  Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

The post Aterian Stock Is Risky, But It Can Pop One More Time appeared first on InvestorPlace.