Bausch Health's Short Interest Dynamics and Implications for a Potential Short Squeeze

In the realm of contrarian investing, identifying mispriced assets in high-debt, low-short-float environments can unlock asymmetric reward potential. Bausch Health Companies Inc. (BHC), a pharmaceutical giant with a staggering debt burden and a relatively modest short interest, presents a compelling case study. This analysis explores how BHC's short interest dynamics, coupled with its precarious debt profile, could catalyze a short squeeze-a scenario where upward price momentum forces short sellers to cover positions, amplifying gains for long investors.

High Debt as a Double-Edged Sword

Bausch Health's balance sheet is a textbook example of financial leverage gone extreme. As of Q4 2025, the company's total debt stands at $21.0 billion, with a debt-to-equity ratio of 5,910.67%-a figure that dwarfs even the most aggressive leveraged buyouts. This metric, driven by a mere $356.0 million in shareholder equity, underscores the company's vulnerability to interest rate fluctuations and liquidity shocks. Yet, for contrarian investors, such a profile also signals a potential catalyst: a debt-laden stock with limited downside protection could experience explosive rallies if earnings or liquidity conditions improve.

Short Interest: A Low but Rising Threat

Short interest metrics for BHC reveal a mixed picture. As of December 15, 2025, the short percent of float ranged between 1.87% and 2.87%, with a short interest ratio (days to cover) fluctuating between 2.28 and 5.89 according to market data. While these figures are relatively low compared to industry averages, they have risen sharply in the recent quarter. Short interest increased by 13.5% from 5.65 million shares to 6.41 million shares, reflecting growing bearish sentiment. However, the days-to-cover metric has diverged across reports-some sources cite a ratio as high as 4.63, while others report 2.0 according to different data sources. This inconsistency may stem from varying methodologies (e.g., shares outstanding vs. float) or timing differences in data collection.

Contrarian Logic: Short Squeeze Potential

The interplay between BHC's high debt and low short float creates a unique risk-reward asymmetry. A short squeeze occurs when a stock's price rises rapidly, forcing short sellers to buy shares to limit losses. For BHC, the low short percent of float (1.87–2.87%) suggests that even a modest price uptick could trigger covering activity.

The days-to-cover ratio further amplifies this risk: a ratio of 5.89 implies that short sellers would need nearly six days of average trading volume to unwind positions, potentially accelerating price momentum.

This dynamic is particularly potent in a high-debt environment. BHC's creditors and equity holders are already bracing for financial stress, but a positive earnings surprise or a debt restructuring could shift sentiment overnight. Short sellers, who have bet on continued deterioration, would face margin calls if the stock rallies, creating a self-fulfilling upward spiral.

Risks and Caveats

While the short squeeze narrative is enticing, investors must weigh significant risks. BHC's debt load remains a critical vulnerability. A default or downgraded credit rating could trigger a liquidity crisis, overwhelming any short-covering gains. Additionally, the recent rise in short interest (from 5.65 million to 6.41 million shares) indicates that bears are still accumulating positions, which could exacerbate downward pressure if the stock underperforms.

Conclusion: A Calculated Contrarian Play

Bausch Health's short interest dynamics and debt profile position it as a high-risk, high-reward opportunity for contrarian investors. The low short float and elevated days-to-cover ratio suggest that even a modest earnings beat or debt restructuring could ignite a short squeeze. However, the company's precarious financial health demands rigorous due diligence. For those willing to navigate the volatility, BHC exemplifies how short interest metrics can illuminate hidden value in distressed assets.