When considering stocks, it's always helpful to gauge what the rest of the market thinks. One source of sentiment is the number of shares shorted. Companies seeing significant increases in shares shorted are being viewed more negatively, and vice versa.
I ran a screen on the technology sector for stocks seeing the most significant decreases in shares shorted month-over-month, as this indicates that short sellers are becoming less bearish on these stocks. Why the optimism? To find at least one possible fundamental signal for the bullish sentiment, I looked through financials of the 15 companies with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.
I screened for stocks seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period. Here are the top 3 stocks after my screening:
1. Activision Blizzard, Inc. (ATVI):
Most recent closing price: $14.82
Activision publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Activision Blizzard is the world's second-largest gaming company by revenue after Nintendo. In December 2007, Activision announced that the company and its assets would merge with fellow games developer and publisher, Vivendi Games. In April 2008, the European Commission permitted the merger to take place. The deal closed on July 9, 2008, and the total transaction was an estimated $18.9 billion.
Shares shorted have decreased from 15.45M to 8.15M over the last month, a decrease which represents about 1.74% of the company's float of 418.49M shares. The days to cover ratio at 0.94 days.
Revenue grew by 25.75% during the most recent quarter ($1,768M vs. $1,406M y/y). Accounts receivable grew by 8.94% during the same time period ($707M vs. $649M y/y). Receivables, as a percentage of current assets, decreased from 12.06% to 11.27% during the most recent quarter.
Activision has increased revenue every year since 2008, and shows no signs of slowing up anytime soon. The decrease in shares shorted is a positive indicator that investors are bullish on this tech giant and should be a stock you consider in the near future.
2. Cavium, Inc. (CAVM):
Most recent closing price: $29.90
Cavium is a San Jose, California-based company specializing in ARM-based and MIPS-based network, video and security processors. The company offers processor and board level products targeting routers, switches, appliances, storage and servers.
Shares shorted have decreased from 5.62M to 5.02M over the last month, a decrease which represents about 1.21% of the company's float of 49.58M shares. The days to cover ratio at 5.47 days.
Revenue grew by 17.91% during the most recent quarter ($66.37M vs. $56.29M y/y). Accounts receivable grew by -11.28% during the same time period ($33.57M vs. $37.84M y/y). Receivables, as a percentage of current assets, decreased from 24.97% to 20.36% during the most recent quarter.
In addition to the aforementioned fundamentals, analyst expect Cavium's EPS to 3-fold over the next couple of years. Keep an eye out for this potential sleeper.
3. Computer Sciences Corporation (CSC):
Most recent closing price: $45.60
Computer Sciences Corporation is an American multinational corporation that provides information technology (IT) services and professional services. With headquartered in Falls Church, Virginia, CSC offers services such as:
- IT and business process outsourcing like systems analysis, applications development, network operations, end-user computing and data center management,
- Emerging services such as cloud computing and cybersecurity protection.
- A variety of other IT and professional services, including systems integration, management consulting, technology consulting and other professional services.
Shares shorted have decreased from 3.00M to 1.50M over the last month, a decrease that represents about 1.03% of the company's float of 145.04M shares. The days to cover ratio at 0.96 days.
Revenue grew by 2.55% during the most recent quarter ($3,781M vs. $3,687M y/y). Accounts receivable grew by -10.83% during the same time period ($2,939M vs. $3,296M y/y). Receivables, as a percentage of current assets, decreased from 70.56% to 52.31% during the most recent quarter.
The EPS estimate for the company's current year increased from 2.4 to 2.73 over the last 30 days, an increase of 13.75%. This increase came during a time when the stock price changed by 1.06% (from 48.07 to 48.58 over the last 30 days).
If you run a free cash flow analysis, CSC is undervalued. This could be a potential reason why investors have slowed up on shorting this technology stock. Investors should pay attention to the next earnings report being announced on May 15, as this stock has potential to continue its bullish trend. Investors should certainly keep an eye on Computer Science Corporation, as well as the other aforementioned stocks, as consumer sentiment has the potential to become more bullish and drive the stocks even further.