The stock prices of Groupon and Hewlett-Packard have been on a rise after some rumors (discussed below) hit the market. Both stocks have been shorted in large quantities:
In my earlier post on stocks moving on the M&A news, I mentioned the fact that GRPN's price moved upwards after it was disclosed that a hedge fund was acquiring a 9.9% stake in the company. This Friday, the stock saw a monumental hike of 23% after a rumor hit the market that Google (GOOG) was making another acquisition offer to GRPN. The search engine giant famously made a $6 billion offer to GRPN in December 2010, a year before it went public. I believe GRPN deeply regrets that it turned down the offer given that the current worth of the company is only $3.1 billion.
On Monday, GRPN lost most of its gains made on Friday after an analyst of Evercore Partner claimed that the news of GOOG's offer to GRPN had nothing to do with reality and was a mere speculation by Bloomberg.
The stock is down 80% YTD. The company's forward multiple tells us that the current valuations are cheap:
Currently, 12% of the stock has been shorted. I believe margins have a key role to play in the long-term performance of this stock. The margins are expected to improve in the future, as the company improves its ecosystem by offering incentives to its partners.
Hewlett-Packard Company (HPQ)
The shares of the company are moving after a rumor hit the market yesterday that the famous activist investor, Carl Icahn, is building a stake in the company and is soon going to announce it in the public. The shares have surged 2.3% since this 'news' reached the market. Currently, 5% of the total float has been shorted by the investors.
The investors with a short position in this stock are having a tough time since 20th November. The stock is up 21% since that date. The company has clearly announced that it is not aware if the billionaire has bought a stake in the company. According to David Faber, a financial journalist at CNBC, the company has had no discussions with Icahn.
"HP has had no conversations at this point in any way with Mr. Icahn or aware he owns any single share of the company stock," writes Faber.
It is important to note that HPQ already has an activist investor on its board. Ralph Whitworth, the founder of Relational Investors LLC (a private investment management firm), was placed on HPQ's board in November 2011 in order to boost the investors' confidence shaken by strategy shifts and slashed sales forecasts at that time. Ralph has been responsible for activism in many companies like ITT Corp. (ITT) and defense contractor L-3 Communications Holdings Inc. (LLL).
The notion that HPQ could be the target of an activist push - perhaps one that would call for a breakup of the company - has sent bullish signals to the market.
An article published in the Wall Street Journal stated the following:
"Analysts have said that HPQ's seeming lack of direction as well as the potential for restructuring its portfolio of hardware and software assets, make the company an attractive target for investor activism."
The stock is trading at a forward multiple of 4x. The stock also pays a handsome dividend yield of 3.8%. The investors did not seem pleased with the performance of the company in the recent quarter. Though, the company maintained its guidance for the next year, it faces potential headwinds in its printer business that generates almost 20% of its overall revenues. The Enterprise System revenue has also been on a decline (showed a decline of 9% YoY in the fourth quarter). This segment makes up for almost 17% of the overall revenue. Investors can expect positive news from the Personal System segment due to the 'impact' of Windows 8.