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There is a lot more to profitability than whether a company's bottom line is increasing. Profits can come from several sources, with some better than others. To get a deeper look into a company's profit trends, we performed DuPont analysis on stocks with high short floats.

DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

We therefore focus on companies with the following positive characteristics: Increasing ROE along with,

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.

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

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks will soon experience a short squeeze? Use this list as a starting point for your own analysis.

List sorted by increase in ROE.

1. Vera Bradley, Inc. (NASDAQ:VRA): Engages in the design, production, marketing, and retail of functional accessories for women under the "Vera Bradley" brand. Market cap of $1.37B. Short float at 52.15%. MRQ Net Profit Margin increased to 10.70% from 6.55% year-over-year, Sales/Assets increased to 0.54 from 0.52, while Assets/Equity decreased to 2.18 from 3.54. It's been a rough couple of days for the stock, losing 7.13% over the last week.

2. Coinstar, Inc. (CSTR): Provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. Market cap of $1.34B. Short float at 41.89%. MRQ Net Profit Margin increased to 7.97% from 5.13% year-over-year, Sales/Assets increased to 0.37 from 0.31, while Assets/Equity decreased to 2.54 from 2.71. Might be undervalued at current levels, with a PEG ratio at 0.71, and P/FCF ratio at 8. The stock has lost 27.54% over the last year.

3. hhgregg, Inc. (NYSE:HGG): Operates as a specialty retailer of consumer electronics, home appliances, and related services. Market cap of $520.41M. Short float at 29.64%. MRQ Net Profit Margin increased to 0.97% from 0.82% year-over-year, Sales/Assets increased to 0.94 from 0.78, while Assets/Equity decreased to 2.27 from 2.28. The stock is a short squeeze candidate, with a short float at 29.64% (equivalent to 17.7 days of average volume). It's been a rough couple of days for the stock, losing 11.13% over the last week.

4. 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 of $1.11B. Short float at 28.86%. MRQ Net Profit Margin increased to 3.54% from 0.34% year-over-year, Sales/Assets increased to 0.79 from 0.77, while Assets/Equity decreased to 3.42 from 3.91. The stock has performed poorly over the last month, losing 20.34%.

5. Valassis Communications Inc. (NYSE:VCI): Operates as a media and marketing services company primarily in the United States. Market cap of $852.49M. Short float at 28.09%. MRQ Net Profit Margin increased to 5.20% from 4.71% year-over-year, Sales/Assets increased to 0.32 from 0.32, while Assets/Equity decreased to 3.50 from 3.70. This is a risky stock that is significantly more volatile than the overall market (beta = 3.15). It's been a rough couple of days for the stock, losing 10.94% over the last week.

6. Sonic Automotive Inc. (NYSE:SAH): Operates as an automotive retailer in the United States. Market cap of $771.38M. Short float at 27.16%. MRQ Net Profit Margin increased to 0.97% from 0.73% year-over-year, Sales/Assets increased to 0.89 from 0.85, while Assets/Equity decreased to 4.43 from 5.23. It's been a rough couple of days for the stock, losing 5.12% over the last week.

7. The Children (NASDAQ:PLCE): Operates as a children's specialty apparel retailer in North America. Market cap of $1.37B. Short float at 23.89%. MRQ Net Profit Margin increased to 6.96% from 6.91% year-over-year, Sales/Assets increased to 0.55 from 0.52, while Assets/Equity decreased to 1.44 from 1.51. The stock has had a good month, gaining 16.03%.

8. Constant Contact, Inc. (NASDAQ:CTCT): Provides on-demand email marketing, social media marketing, event marketing, and online survey solutions primarily in the United States. Market cap of $708.70M. Short float at 23.50%. MRQ Net Profit Margin increased to 9.84% from 6.56% year-over-year, Sales/Assets increased to 0.29 from 0.28, while Assets/Equity decreased to 1.32 from 1.36. The stock has lost 17.06% over the last year.

9. Lumber Liquidators Holdings, Inc. (NYSE:LL): Operates as a specialty retailer of hardwood flooring in the United States. Market cap of $439.72M. Short float at 22.39%. MRQ Net Profit Margin increased to 3.92% from 2.91% year-over-year, Sales/Assets increased to 0.65 from 0.63, while Assets/Equity decreased to 1.29 from 1.35. The stock is a short squeeze candidate, with a short float at 22.39% (equivalent to 11.96 days of average volume). It's been a rough couple of days for the stock, losing 8.65% over the last week.

10. Life Time Fitness Inc. (NYSE:LTM): Designs, builds, and operates sports and athletic, professional fitness, and family recreation and spa centers in the United States. Market cap of $1.69B. Short float at 21.69%. MRQ Net Profit Margin increased to 10.17% from 9.81% year-over-year, Sales/Assets increased to 0.15 from 0.14, while Assets/Equity decreased to 1.91 from 2.09. This is a risky stock that is significantly more volatile than the overall market (beta = 2.18). The stock has lost 0.35% over the last year.

11. STR Holdings, Inc. (NYSE:STRI): Engages in the manufacture and sale of encapsulants to the solar module industry. Market cap of $331.14M. Short float at 20.24%. MRQ Net Profit Margin increased to 80.53% from 19.51% year-over-year, Sales/Assets increased to 0.0984 from 0.0983, while Assets/Equity decreased to 1.44 from 2.21. It's been a rough couple of days for the stock, losing 15.05% over the last week.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 11 Highly Shorted Stocks With Strong Sources Of Profitability