Is a Giant Short Squeeze Brewing in Petco Stock?

Short sellers are sitting on a big bet against Petco Health and Wellness (WOOF), but the pet retailer may have handed them a problem. After years of painful restructuring, Petco delivered an earnings report that beat profitability targets and sketched out an aggressive growth plan for 2026. Petco stock is up over 40% in the past week. And with nearly 17% of the float sold short, the setup for a squeeze is becoming hard to ignore.

Here’s what investors need to know.

When a stock has a sizeable chunk of its tradeable shares sold short, any positive news can trigger a cascading rally. Shorts scramble to buy back shares to cut losses, which pushes the price up further, which forces more shorts to cover, a feedback loop known as a short squeeze.

Currently, Petco’s numbers make it a candidate for exactly that.

According to Yahoo Finance’s data, short interest for Petco stood at 15.54 million shares, representing 17% of the float and a short ratio of 11.69. That means it would take nearly 12 days of average trading volume just for shorts to fully unwind their positions.

That is a lot of fuel if sentiment shifts.

In Q4, Petco reported net sales of $1.52 billion, down 2.4% year-over-year (YoY), with same-store sales down 1.6%.

In the last 12 months, Petco has cut unprofitable sales, closed underperforming stores, and aimed to strengthen the balance sheet. Despite slowing sales, Petco reported a 21% increase in EBITDA, while operating cash flow rose 77%.

Valued at a market cap of $964 million, Petco reported a free cash flow of $187 million in fiscal 2026 (ended in January), up from less than $50 million in 2025. Leverage, once a major concern at over 4x net debt-to-EBITDA, fell to 3x by year-end. Petco also refinanced its debt, extending maturities to 2031.

Petco CEO Joel Anderson outlined a four-pillar strategy called “Reach for the Sky” designed to drive sales higher through 2026 and beyond. The plan targets fresh-food expansion (adding over 1,000 freezers this year), new national-brand and flavor launches, owned-brand growth, and scaling its grooming, training, and veterinary services.

Petco surged following its Q4 report as the company aims to expand its product and services ecosystem with a focus on cost savings. Anderson identified a customer segment called “Passionate Explorers,” which are pet parents who prioritize innovation, expert advice, and premium experiences, as the core growth target.

Notably, roughly half of Petco’s dog customers don’t currently buy dog food from Petco. That represents a massive share-of-wallet opportunity the company is now actively pursuing.

For the full year, Petco guided for net sales growth of flat to up 1.5%, with positive comparable-store sales and adjusted EBITDA between $415 million and $430 million, in line with estimates of $423 million.

A short squeeze isn’t guaranteed, as it requires a sustained narrative shift that forces short sellers to reconsider their bets.

The conditions appear to be building.

• Petco’s balance sheet is cleaner, leadership is newer and more focused, and the growth strategy is more specific than anything it has outlined in years.

• Anderson noted on the earnings call that Q1 is expected to show a comp improvement from Q4, with momentum building through the year.

• With a short ratio above 11 and 16.85% of the float still sold short, even modest positive earnings surprises in the coming quarters could light the fuse.

Out of the 12 analysts covering WOOF stock, two recommend “Strong Buy,” one recommends “Moderate Buy,” eight recommend “Hold,” and one recommends “Moderate Sell.” The average Petco stock price target is $3.80, above the current price of about $3.40.

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com