Intel (INTC) has long been considered one of the bellwethers of the technology industry. From a standpoint of historical revenue generation and growth, tech names like Intel and Microsoft (MSFT) have been near the top of the list. And if you look strictly at the current financial data, Intel looks like a compelling investment as well. The stock sports a forward P/E ratio of about 11, analysts are still forecasting future growth and a 4% dividend yield is there to cushion some of the volatility. But look deeper and things don't look quite so good.
Since the tech bubble burst in 2001, Intel's stock price has demonstrated a long-term stagnation trend. As the NASDAQ and the broader market in general continue to rally from the bottom reached during the financial crisis, Intel has found itself largely left behind. There could be a number of reasons for this. Increased competition from companies like Qualcomm (QCOM) has slowly eroded Intel's market share. The company also failed to respond to the evolution to mobile as quickly as others and is now paying the price. As a result, analysts are starting to lower their expectations for future quarters and Intel's outlook has become clouded.
One of the telling signs of investor expectations for the company is in the stock's short interest. Among Dow stocks, Intel has been near the top of the list of shorted stocks according to the "days-to-cover" number for the last couple of years. In the most recent data release, Intel moved to the #1 spot with a days-to-cover ratio of over 8 and almost a quarter of a billion shares total being shorted - a number which has almost tripled in the past couple years.
This number could end up meaning a few things. The obvious one is that a lot of investors are shorting the stock betting on a downward movement in the stock price. The sheer number of short shares outstanding is significant enough - Intel's short position currently ranks #2 overall behind only Sirius XM Radio (SIRI) - but the days-to-cover ratio (a measure of the total number of short shares divided by the average daily volume of the stock) indicates how large the position really is. While there are many stocks that carry a larger ratio Intel carries one of the biggest numbers among large companies.
On the upside, Intel's short interest could position the stock for a boon in the short term. Any bit of good news coming out of the company, the economy or the government could result in a short squeeze which could make the stock price rebound quickly. Could the XMM series of chips set to debut later this year and into 2014 be that catalyst?
Intel has some work to do to shift sentiment. Investor and analyst opinion alike appears to be on the bearish side and the company may have a ways to go to reverse the trend of increasing short interest. As mentioned earlier, success with the XMM chips could help the company get there as could continued progress in the mobile arena. Intel has one of the largest research and development budgets so it's certainly within reason that the company can get things moving again.
A potential short squeeze combined with a stock that is attractively valued could mean that investors get rewarded following good news. But Intel needs to deliver again in order to get that momentum moving.