Having gained more than 400% since mid-May, Redbox's  (RDBX) - Get Redbox Entertainment Inc. Report  stock has caught the attention of retail investors as a potential short-squeeze opportunity. Social media buzz and Wall Street bearishness has led to RDBX being labeled the newest meme stock.

Figure 1: Redbox Is the New Meme Stock. Could It Go to the Moon?

(Read more from Wall Street Memes: Short Sellers Increased Their Bets Against GameStop Stock. Smart Move?)

Questionable business fundamentals and high skepticism regarding its future is the perfect combination for Redbox stock to become a short-selling target. And indeed, about 37% of its float is being shorted.

Redbox is known for its public DVD rental kiosks. These kiosks represent about 90% of the company's revenues, with the remaining 10% coming from on-demand streaming services.

A few years ago, the company was publicly traded. But it was bought by an assent management company and taken private in 2016.

Last year, Redbox went public again through a SPAC (special purpose acquisition company) deal.

In May 2022, Chicken Soup for the Soul Entertainment (CSSE), which owns the Crackle streaming service, acquired Redbox for about $31 million. The deal will still take a few months to close.

Meanwhile, Wall Street has been quite bearish on the company, largely due to the dwindling DVD rental business.

Case in point: Redbox ended 2021 with 38,379 rental kiosks in 32,586 locations, a sharp decline from the 40,026 kiosks in 33,661 locations it had in 2020.

GameStop  (GME) - Get GameStop Corporation Report  and Redbox are similar in some aspects. Both are companies that bring back the nostalgia of a less digital era. But at the same time, both companies are trying to modernize to adapt to current trends.

And both companies suffer from Wall Street criticism about their capabilities.

This may also have influenced retail investors to look more closely at Redbox. Buzz on social media concerning RDBX as a possible short-squeeze target has made the stock very popular lately among retail investors. As a consequence, Redbox's stock has risen more than 400% within one month.

However, it is quite unlikely that Redbox stock will become the next GameStop. Redbox's precarious financial situation puts it at considerable risk of dilution in order to finance its business. This would limit a mega-short squeeze.

Redbox stock has already gone up significantly since the beginning of June, when we mentioned in a previous article that it had short-squeeze potential.

In the first two weeks of June, shares jumped more than 130%.

However, the latest data indicates that the number of shorted shares nearly doubled last month. At the end of April, about 2.52 million shares were being shorted. At the beginning of May, that number was already 4.08 million.

Such an increase of bets against Redbox, together with high volume driven by retail investors who have popularized the stock on social media, has driven Redbox to very high cost-to-borrow levels. It reached nearly 740% in the first weeks of June. See the chart below.

Figure 2: Redbox's borrowed shares data.

High cost-to-borrow fees imply more difficulties for short sellers and may even force them to close their positions, which are almost always unsustainable over the long run.

The popularity and high trading volume of the stock have also led to a utilization rate of 100% in recent weeks.

In theory, this implies that there are no more shares available to be shorted. But in practice, it means that short sellers need to be more resourceful to find shares to borrow.

The completion of the Chicken Soup for the Soul Entertainment acquisition could also be an important catalyst to maximize trading volume.

However, the risks regarding joining the Redbox game involve dilution. Redbox holds private placement warrants (6,062,500) with an exercise price of $11.50. With Redbox closing the trading session on June 10 at a share price of $13.20, this implies that warrants will be exercised and the float will become much larger.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)

Co-producer of The Street's financial channels: Apple Maven, Amazon Maven and Wall Street Memes. Researcher and operations manager at DM Martins Research.