CommVault Shorts: It's Time To Worry

Oct. 7.13 | About: CommVault Systems, (CVLT)

If the current price of CommVault (CVLT) continues to climb, many short investors will find themselves in the middle of a major short squeeze. On September 25, I wrote an article telling shorts that they should be prepared to cover their positions. Actually the shares do not even have to continue to climb in value. There are open puts as low as $40 a share. Here are all of the puts for CVLT according to Yahoo Finance, as of Friday October 4. Since the current price is floating between $80 and $90 a share, the market is teasing the bulk of the shorts that are in that range. Most are hoping for some sort of macro dip due to the current government shutdown. However, at the time of this writing, that has not happened.

Put Options Expire at close Saturday, October 19, 2013
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Strike Symbol Last Chg Bid Ask Vol Open Int
40.00 CVLT131019P00040000 0.40 0.00 N/A 0.10 1 20
45.00 CVLT131019P00045000 0.05 0.00 N/A 0.10 1 26
50.00 CVLT131019P00050000 0.10 0.00 N/A 0.25 19 60
55.00 CVLT131019P00055000 0.05 0.00 N/A 0.10 1 50
60.00 CVLT131019P00060000 0.10 0.00 N/A 0.10 20 71
62.50 CVLT131019P00062500 0.20 0.00 N/A 0.10 4 18
65.00 CVLT131019P00065000 0.75 0.00 N/A 0.10 10 131
67.50 CVLT131019P00067500 0.55 0.00 N/A 0.10 10 53
70.00 CVLT131019P00070000 0.05 0.00 N/A 0.10 8 48
72.50 CVLT131019P00072500 0.05 0.00 0.05 0.10 15 54
75.00 CVLT131019P00075000 0.15 0.00 N/A 0.15 3 87
77.50 CVLT131019P00077500 0.17 0.00 0.05 0.15 10 51
80.00 CVLT131019P00080000 0.50 0.00 0.15 0.25 2 379
82.50 CVLT131019P00082500 0.50 0.17 0.35 0.50 10 131
85.00 CVLT131019P00085000 0.85 0.45 0.75 0.85 10 159
87.50 CVLT131019P00087500 1.57 0.83 1.50 1.65 30 369
90.00 CVLT131019P00090000 2.85 0.00 2.65 2.85 2 299
92.50 CVLT131019P00092500 8.70 0.00 4.20 6.10 5 19
95.00 CVLT131019P00095000 9.50 0.00 6.20 8.40 10 20
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Highlighted options are in-the-money.
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There are currently 1.81 million shares that have been shorted. Even though this is less than 5% of the float, it would take at least 8 trading days to cover all of the positions. If a dip does not come in time, there will be a high price to pay for the shorts that gambled and waited. Analysts are all over the board as to what that price will be. Recent ratings range from $75 a share to a high of $115. But even if the price did hit the low target of $75, there are a lot of shorts that will get burned.

Date Firm Action Old Rating New Rating Old Price Target New Price Target
9/26 Jefferies Group Reiterated Rating Hold $78.00
9/26 Pacific Crest Boost Price Target Outperform $92.00 $105.00
8/22 Lazard Capital Markets Set Price Target Buy $95.00 $115.00
8/1 Credit Suisse Boost Price Target Neutral $65.00 $75.00
5/8 RBC Capital Boost Price Target Sector Perform $75.00 $85.00
5/8 Mizuho Boost Price Target Neutral $54.00 $80.00
5/2 Piper Jaffray Cos. Upgrade Neutral Overweight $74.00 $84.00
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The company offers "cloud" software to protect the data of large corporations worldwide. The new Simpana 10 product has many other functions compared to other similar software. According to a press release on Friday:

CommVault's Simpana® software suite of products was designed to work together seamlessly from the ground up, sharing a single code and common function set, to deliver superlative Data Protection, Archive, Replication, Search and Resource Management capabilities.

CVLT also announced that earnings results will be released October 29 on a Company Conference Call (PR link above). There were a couple of comments on my last article saying that CommVault's growth may be slowing down, and that this will be apparent when earnings are released. The shorts are betting everything on that. However, when CommVault is compared to industry leaders, it ranks very high for a Small Cap. Even its revenue growth is in the top third. As far as earnings growth CommVault ranks number 11 out of 155.

CVLT vs. Industry Leaders

Statistic Industry Leader CVLT CVLT's Rank
Market Capitalization Oracle (NYSE:ORCL) 151.35B 4.15B 17 / 155
P/E Ratio (ttm) SPS Commerce (NASDAQ:SPSC) 947.29 76.74 12 / 155
PEG Ratio (ttm, 5 yr expected) Agilysis (NASDAQ:AGYS) 7.83 2.03 21 / 155
Revenue Growth (Qtrly YoY) Liquid Holdings (NASDAQ:LIQD) 752.10% 20.80% 47 / 155
EPS Growth (Qtrly YoY) Open Text (NASDAQ:OTEX) 441.80% 28.60% 11 / 155
Long-Term Growth Rate (5 yr) Cornerstone OnDemand (NASDAQ:CSOD) 50.00% 25.00% 16 / 155
Return on Equity (ttm) Cadence Design (NASDAQ:CDNS) 59.72% 17.73% 15 / 155
Long-Term Debt/Equity (mrq) N/A
Dividend Yield (annual) American Software (NASDAQ:AMSWA) 4.80% N/A N/A
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Many shorts are also looking at the relatively high Price to Earnings Ratio of 76. However this is very low compared to the other leaders in the industry according to Yahoo. And the forward P/E is only 45. A lot is riding on the revenue and earnings results from this past quarter. The success of Simpana 10 may be the catalyst that CommVault needs to send it out of Small Cap status. Until then, a lot of shorts may have some sleepless nights.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.