Nice Short Squeeze on PALM

I guess it’s pretty clear the shorts were not paying much attention to ongoing developments at Palm (PALM) in the last month or so. Going into December there were about 38 million shares short out of a float of about 110 million.

When Palm got a fresh injection from Elevation Partners that started the ball rolling, followed by their stellar display of new technology and strategy at CES Thursday, especially in the absence of other interesting news from the Steve-less Macworld and humdrum CES.

Most fundamental analysis would say the stock is a little ahead of itself right now at $6.50 but the volume so far suggests there are still lots of shares sold short. Our long-term analysis suggests an intrinsic value of $11 based on a successful execution of the turnaround. So despite all the near-term momentum, there isn’t a strong enough reason to sell shares at these prices, at least not yet.

Shorts will certainly point to "there still is lots for Palm to prove" and the next couple of quarters are going to be ugly based on reported results. However if investors are willing to "look through" the negative short-term data points, the shorts may not get the relief they are hoping for.

We agree that there are still plenty of risks for Palm.

Disclosure: Long PALM

Comments

[Yagottabe K...:]

What did this article just say? That's a real question, by the way.

The folks who could stay in short positions in, say, September and stayed there across the Elevation Partners' new $100 million investment in Palm probably are hopping from foot to foot in glee from the recent price exuberance and HEAVILY shorting Palm anew - a few non-deep pockets may have covered over the last couple days but those others with deep pockets probably matched those Buys with their own Short Sells!

Jan 11 08:20 AM

[Yagottabe K...:]

Speaking of that $100 million "new investment" by Elevation Partners - there is at least one rumor circulating that this was NOT a new "investment" but instead a life preserver thrown to Palm because Sprint (unexpectedly?) cancelled a Treo Pro order in favor of the Pre.

That would put a whole different perspective on Elevation Partners' action.

Jan 11 09:41 AM

[Maruf:]

Palm's shorts will pay attention when it's stock price exceeds Apple's.

Jan 11 11:36 AM

[Duke Wong:]

The article to tell us to keep PALM because he doesn't want peoples to sale and take the short term profit that could drives stock down.
INTERESTING: The short sale could drive stock higher if it has to be recover but it could makes a good short term profit if stock is over price.
Thanks, It's good for doing a research.

Jan 11 12:03 PM

[PA:]

I think with the $100mm investment, PALM shares oustanding doubled to 200mm if I'm not mistaken...which means the mktcap is over 1B???..which may be way too expensive for now

Jan 11 02:48 PM

[Duke Wong:]

I looked at PALM, seem like it's over price. They have lost the money on last couple quarters. The book-value was negative, unless they make very good money in next few quarters.

PALM has Palm-Pre which is similar to iphone but PALM is not the market leader so think about it.

PALM had been spend a lot of money for development of Palm-Pre.

If anyone are good in technical (chart) then please post your opinion. I may want to short or buy put for the short term profits. Thanks.

Jan 11 09:14 PM

[H.J. Huneycutt:]

I'm baffled as to how people can convince themselves in this environment that a consumer electronics firm that is heavily indebted should be valued at levels that assume that their profitability is at least 150% of what is was during the best of times for them.

Even $6 is a stretch. If Palm suvives and can return to a reasonable level of profitability, they might be worth $4. That's a big if. This stock is not worth $11. And it is definitely not worth $15 as one analyst suggested. If it jumps up that high, it'll be a great short.

Jan 12 11:06 AM

[jenny:]

Palm has lost money in the last couple quarters and even with the expanding market, they are hardly even close to the leaders. Palm was forecasted to close down today (www.predictwallstreet....) and I remain bearish on them even though it seems sentiment for PALM is becoming bullish. I don't get it because it seems as if most people think this stock is either completely over priced or pretty much garbage.

Jan 12 03:43 PM

[Kris Tuttle:]

My apologies for not having more research in this post. We publish full research notes but don't post them here in their entirety. I did find the move in the stock a bit surprising in terms of magnitude but given the high short position it makes sense. Even though Palm has some touch challenges here they have a strategy that can build value. If other carriers pick up the Pre and/or they can license the new WebOS and get a following there the shorts will have to acknowledge that the stock is too risky for them on the upside.

For those that like these kinds of things this is probably a highly variable situation. It's too soon to take victory laps but you can't really dance on the tomb either.

Jan 20 09:38 AM