by Alyssa Oursler | October 22, 2013 6:00 am
It has taken awhile, but the short interest for sizzling Tesla Motors (TSLA) has finally cooled off a bit. As of the end of September, around 33% of the float was sold short vs. more than 60% back in April.
Granted, 33% short interest is still a pretty hefty chunk of the Tesla stock float, but that’s one heck of a dip. So what are investors to take away from this?
For some TSLA stock investors, this downtrend could be seen as a bullish sign for the stock. That is, if the bears have quit their bets, that could be taken as an acknowledgment that they think the stock will keep chugging higher.
On the other hand, you also could take it to mean that Tesla stock will have to rise on its own merit going forward, since the potential for a short squeeze to pour gasoline on the fire has been diminished.
Either way, it means Tesla beat back the bears.
Of course, TSLA isn’t the only stock that has had luck against the bruins. R.R. Donnelley & Sons (RRD), First Solar (FSLR), Boston Beer Co. (SAM), GameStop (GME) and SuperValu (SVU) have also proven the naysayers wrong during the past year and, for better or for worse, boast even lower short interest as a result.
Let’s take a closer look at these five stocks the bears are increasingly giving up on:
R.R. Donnelley & Sons (RRD)
Stock gain in past year: 58%
Change in shares shorted: -52%
Change in shares days to cover: -56%
R.R. Donnelley & Sons (RRD) might be best known for its hand in the Google (GOOG) earnings gaffe of last October, but the shorts smelled blood before that.
Short interest as a percentage of float peaked last July at 42%, but has been falling ever since. Still, even by October, it would have taken 30 days for shorts to cover their positions thanks to a whopping 49 million shares sold short.
Currently, 23 million shares sold short translates into short interest of 19% and 13 days to cover 13. Both numbers are nothing to sneeze at … but still represent dramatic declines from year-ago comparisons.
To some extent, the fall in short interest is hardly surprising when you consider the sizzling gains of nearly 90% RRD stock has in the books year-to-date — a climb at least partly thanks to shorts realizing their mistake and rushing to cover.
But helping to spark R.R. Donnelley along the way was a series of earnings beats dating back to “PENDING LARRY QUOTE” and even further.
Stock gain in past year: 126%
Change in shares shorted: -64%
Change in shares days to cover: -40%
A reliance on government subsidies, increasing price competition from China and a pile of other factors has historically made the solar industry a popular destination for short sellers.
Unfortunately, a killer comeback by solar stocks this year has also made that destination a painful one.
As of last October, more than half of the float was sold short for solar stock First Solar (FSLR). Since then, the stock has gone on a rampage. FSLR’s 12-month gains might lag those of rivals Yingli Green Energy (YGE) and SunPower (SPWR) … but a near-doubler in 2013 has been enough to flush a good chunk of those shorts out. The number of shares sold short has slid from 29.8 million a year ago to 10.8 million now, which is 21% of the FSLR float. That’s more than 30 percentage points lower year-over-year.
First Solar has a number of optimistic expectations, including revenue generation from its Californian “Desert Sunlight” solar farm and a resulting boost in earnings guidance for the year.
Stock gain in past year: 137%
Change in shares shorted: -58%
Change in shares days to cover: -39%
The raw number of shares sold short for Boston Beer Co. (SAM) pales in comparison to the other names on this list. A year ago, just more than 3 million shares of SAM stock were shorted, while that number has declined to 1.3 million as of the end of September.
But since the small-cap beer stock has a mere 8.5 million shares in its float, those numbers are anything but insignificant.
Last October, for example, it would have taken shorts more than a month to cover their positions in SAM, while better than 40% of the the float was held by bears. And even recently, falling trading volume sent days to cover north of 40 even with short interest in a general downward trend.
Now, however, the 1.3 million shares sold short make up less than 20% of the float and would take just under 20 days to cover.
Helping Boston Beer along the way have been a few year-over-year ramps in revenues, as well as a huge earnings improvement and an analyst beat in its most recent quarter.
Stock gain in past year: 135%
Change in shares shorted: -59%
Change in shares days to cover: -35%
Beaten-down GameStop (GME) was another popular name for short sellers around a year ago, both because of its brick-and-mortar nature and because of the unsure future of physical used games in the next generation of gaming consoles.
But everything keeps coming up GameStop, sending the bears fleeing and shares soaring. The company has topped analyst earnings estimates for four straight quarters, and GME stock has soared more than 130% over the past year to reach early 2008 highs.
Short sellers have obviously been quick to take bets elsewhere. A year ago, 44.3 million shares of GME stock were sold short — more than half the float. It would have taken the bears almost three (trading) weeks to cover. Since then, the bears have given up on nearly 30 million of those shares, leaving just 18% sold short.
Volume has fallen off in the past month or so, so it still would take to nine days to cover. Nonetheless, GME is enjoying its lowest level of short interest in almost three years.
Stock gain in past year: 238%
Change in shares shorted: -62%
Change in shares days to cover: -60%
It’s easy to understand why shorts went shopping for SuperValu (SVU), considering it’s an also-ran in a competitive, low-margin industry and that earnings have fallen by 33% per year over the last half-decade.
But while SVU stock remains far off its heyday, shares have posted a monster comeback in the past year or so, causing the shorts no small amount of pain.
As of last October, it would have taken 19 days for short sellers to cover their positions; that number is now down to seven. That’s because one-third as many shares are sold short — still 17% of the float, but a significant drop from 40% of last October.
The remaining shorts were likely celebrating Friday as SVU suffered an 8% post-earnings slide. But that’s a small victory considering the yearlong SuperValu rally sparked by the company selling off chains and paying off debt, not to mention M&A rumors.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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