4 Stocks With Alarmingly High Short Interest
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the financial realm, short selling activity is an important indicator of the bearish sentiment surrounding a stock. While a high level of short interest is not always a signal that investors should dump their shares, it should give them a reason to pause. Now, in some cases, stocks with an extremely high short percentage of float (tradable shares) can also bounce upwards in a situation known as a “short squeeze,” though it is a risky strategy to attempt to capture these unpredictable price movements. Below are four stocks that have a short percentage of over 30%; this is typically regarded as the quintessential Mendoza line. Just as we mentioned in this article, investors holding these types of stocks must tread carefully.
First Solar (NASDAQ: FSLR)
Unlike its competitors in the solar power industry (here’s an in-depth look), First Solar manufactures solar panels made from cadmium telluride, a material that is cheaper to produce than traditional silicon. In comparison to the likes of Sunpower, Trina Solar, and Suntech Power, FSLR’s production costs are 30-50% lower. Earlier this month, First Solar reported impressive second quarter earnings of $1.65 a share, beating the Street’s estimate by 75.5%, as strong consumer demand outweighed a supply boon from China. Interestingly, annual EPS is still expected to fall by 25% in 2012, and 11.9% in 2013. This may be the reason for the stock’s high short percentage of float, which is 58.3%. Shares of FSLR have recently eclipsed $20 for the first time since April, though these gains look uncertain going forward.
Zillow (NASDAQ: Z)
Since going public last summer, shares of Zillow have gained just over 2%, though they’ve been in the red by double-digits since July. The $1 billion company, which provides homebuyers and sellers with a plethora of real estate data, has recently reported that its Q2 revenue had increased by 75% year-over-year. Moreover, Zillow also beat analysts’ EPS estimates by 25%, as the company’s website saw a record 38 million unique visitors in July. Intriguingly, this quarter marked the first time that there were more pages viewed by mobile users than non-mobile users. Much in the same way that the bears have questioned whether Facebook or Yelp can monetize their mobile platforms (as seen here), there is similar doubt surrounding Zillow. This may partially explain why the stock has such a high short percentage of 71.2%, though it looks like a solid short squeeze candidate. Check back here for updates on this situation.
OpenTable (NASDAQ: OPEN)
OpenTable is an online restaurant reservation platform that allows users to avoid waiting for a table at their favorite eateries. With over 25,000 restaurants in its system, the company offers a lot of variety, though it has seen recent competition from a variety of tech startups, and may have a Google problem in the future. Earlier this month, OpenTable beat the Street’s quarterly earnings estimates, reporting an adjusted EPS of $0.42. By the end of 2012, analysts are expecting YOY earnings growth of 2.6%, with larger expansion (29.3%) by this time next year. Just like this company, it is speculated that Zillow may be a takeover target for Yahoo’s Marissa Mayer, as the company already oversees Yahoo Real Estate. At current prices, shares of Z are overvalued using every major price ratio, though they trade at a 5-year expected PEG ratio of 1.2. A short percentage of more than 50% is certainly troublesome – 54.8% to be exact – as potential players in this industry, like Google, represent a major risk.
J.C. Penney Co (NYSE: JCP)
By now, we’ve all read about new CEO Ron Johnson’s efforts to completely transform this struggling retailer. While it has started with a revamped pricing structure, Johnson eventually wants to turn JCP into a store-within-a-store chain over the long-term. So far, the results haven’t been very pretty, as the company recently announced a second quarter loss. More importantly, execs confirmed that JCP wasn’t going to meet its year-end earnings guidance, though no exact revisions have been released. As if this uncertainty wasn’t a strong enough bearish signal, the stock currently sports a short percentage of 40.3%. Until the company’s new strategy can prove to be effective, it is best to stay away from JCP.
While short interest should not serve as a laundry list for investors to sell, it can provide a starting point for further research, as it is an important indicator to take note of. For more trading ideas in today’s uncertain market environment, visit WealthLift INSIDER.
Fool blogger Jake Mann doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Zillow and has the following options: short OCT 2012 $40.00 calls on OpenTable and long OCT 2012 $40.00 puts on OpenTable. Motley Fool newsletter services recommend First Solar, OpenTable, and Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.