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When considering stocks, it's always helpful to gauge what the rest of the market thinks. One source for that is the number of shares shorted. Companies seeing significant increases in shares shorted are being viewed more negatively, and vice-versa. Here we analyzed a possible reason for the increase in shorts.

We looked at the oil & gas sector for stocks seeing the most significant increase in shares shorted month-over-month. This indicates that short sellers are bearish about the future performance of these stocks.

Could declining top-line growth be a reason why traders are getting cautious?

From our list of 33 oil & gas stocks that signaled heavy short selling, we began to drill into the balance sheets to look for any sign of declining sales. We focused on stocks with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.

Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.

3 stocks met the criteria. We list them in detail below.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

1. Bill Barrett Corp. (NYSE:BBG): Engages in the exploration, development, and production of natural gas and crude oil principally in the Rocky Mountain region of the United States.

  • Market cap at $763.18M, most recent closing price at $15.85.
  • Shares shorted have increased from 8.47M to 9.76M over the last month, an increase which represents about 2.95% of the company's float of 43.68M shares. Days to cover ratio at 8.55 days.
  • Revenue grew by -31.69% during the most recent quarter ($142.53M vs. $208.66M y/y). Accounts receivable grew by 9.51% during the same time period ($97.03M vs. $88.6M y/y). Receivables, as a percentage of current assets, increased from 33.15% to 60.42% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

2. InterOil Corporation (NYSE:IOC): Engages in the exploration, appraisal, and development of crude oil and natural gas properties in Papua New Guinea.

  • Market cap at $2.73B, most recent closing price at $56.60.
  • Shares shorted have increased from 10.85M to 11.48M over the last month, an increase which represents about 1.52% of the company's float of 41.43M shares. Days to cover ratio at 15.92 days.
  • Revenue grew by 15.95% during the most recent quarter ($326.86M vs. $281.9M y/y). Accounts receivable grew by 41.65% during the same time period ($149.85M vs. $105.79M y/y). Receivables, as a percentage of current assets, increased from 24.65% to 36.34% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

3. Western Refining Inc. (NYSE:WNR): Operates as an independent crude oil refiner and marketer of refined products in Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region.

  • Market cap at $3.14B, most recent closing price at $35.49.
  • Shares shorted have increased from 11.20M to 12.42M over the last month, an increase which represents about 2.07% of the company's float of 59.07M shares. Days to cover ratio at 6.84 days.
  • Revenue grew by 2.05% during the most recent quarter ($2,446.32M vs. $2,397.14M y/y). Accounts receivable grew by 50.09% during the same time period ($452.47M vs. $301.47M y/y). Receivables, as a percentage of current assets, increased from 23.56% to 30.63% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

Short data sourced from Yahoo Finance, all other data sourced from Finviz.

Source: Traders Are Cautious Of These 3 Oil & Gas Stocks With Troubling Sales Trends