Following the closing of U.S. stock markets on 3/9/2012, Nasdaq released its latest bi-monthly short interest data. There was a noticeable increase in the outstanding short interest of Research In Motion Limited (RIMM), where the total number of short shares increased from 55.9 Million shares to 59.2 Milllion shares. With 459.4 Million shares floating, the corresponding short interest ratio for RIMM (short shares as a percentage of float) has increased from 12.1% to 12.9%.
Similarly, short interest for Sirius XM Radio, Inc. (NASDAQ:SIRI) increased from 273.1 Million shares to 285.8 Million shares, with the corresponding short interest ratio increasing from 7.4% to 7.7%, while First Solar, Inc. (NASDAQ:FSLR) saw its short interest increase from 13.7 Million shares to 18.6 Million shares, with the corresponding short interest ratio increasing from 19.6% to 26.7%.
As already discussed in an article we published on 3/2/2012, "4 stocks heavily impacted by short interest," while an increase in short interest can possibly provide short term boost to shares (on even minor unexpected positive news), such indicator does not necessarily provide long term sustained appreciation in the value of the underlying shares. In addition, some may even argue that given option associated hedging, such indicator can be misleading. However, in the case of the 3 stocks mentioned, it is possible a boost in share prices can occur, at least in the short term.
Research In Motion Limited
RIMM shares had resumed their downside move recently, following the warning by Jefferies analyst Peter Misek that RIMM will probably warn that it came short on its BlackBerry shipments for the latest quarter. Similar concerns have caused RIMM shares to drop from this year's highs in January, where it traded between $17 and $18, to $12.90 on 3/7/2012. In the past few days, it has improved to $13.58 as of 3/9/2012.
RIMM 3-month Price Chart
Source: Yahoo Finance
It seems everyone has written off RIMM for dead, yet RIMM may still be quite alive and kicking. Its latest mini bounce has come on the heels of its announcement of acquiring Paratek Microwave; an acquisition, although a small one estimated at possibly CAD $50 Million, is not an indication of a dying company. In addition, RIMM can still possibly be an attractive buyout or partnering target, as illustrated in our hypothetical scenario outlined in the article published on 2/29/2012, "Apple and BlackBerry: $16 billion or fruit salad?"
With an estimated 75 Million customer base, despite stiff competition from the likes of Apple and Android device manufacturers, RIMM's BlackBerry still has loyalty for its unmatched security and BBM feature. With a rather high short interest ratio of 12.9%, RIMM can possibly surprise with a short term pop, especially if its earnings expected to be released around March 29,2012 are not substantially worse than expected.
Sirius XM Radio Inc.
Sirius XM shares are up as much as 29.1% year-to-date, having risen from $1.82 on 12/30/2011 to $2.35 as of 3/9/2012. Sirius provides satellite radio service, with the majority of its paid subscriptions generated from car drivers. It is currently trading at a substantial PE ratio of about 33 for the current year ending December 2012, and 23.5 for the year ending December 2013.
Sirius XM Radio Inc. 3-month Price Chart
Source: Yahoo Finance
Although Sirius XM PE ratio may seem excessive at these levels, a resurging U.S. economy can lead to substantial support to the automotive industry, which in turn can provide further upside to Sirius, as discussed in our article published on 8/17/2011, "General Motors may surprise if recession does not materialize."
Despite such support potential from the recovering economy and related drop in unemployment, in addition to current increase in short interest to 7.7%, SIRI can still prove to be quite volatile in both directions (due to its high PE ratio). Hence, for those who support the idea of a possible economy driven move higher in SIRI shares, it is probably best to either buy calls, or possibly buy SIRI shares and hedge them through the purchase of puts, keeping in mind that a pop in price could also prove to be short lived.
First Solar, Inc.
First Solar, Inc. manufactures solar modules utilizing thin film semiconductor technology. Its shares have dropped a staggering 80.7% during the past year, from $142.70 on 3/9/2011 to $27.49 on 3/9/2012. They are down 83% from their 52-week high of $163.
First solar, Inc. 1-year Price Chart
Source: Yahoo Finance
First Solar has consistently missed its earnings estimates during the past three quarters, by as much as 23.9% for the quarter ending June 2011, 15.1% for the quarter ending September 2011 and 17.6% for the quarter ending December 2011. Current analysts' earnings estimates for the quarter ending Match 2012 range from as much as a loss of $1.85/share, to a gain of $1.52/share.
Although its PE ratio of 6.9 for the year ending December 2012, and 6.1 for 2013, seem reasonable, such ratios actually vary widely among different analysts; ranging between 5 and 8 for 2012, and 4.1 and 14.1 for 2013.
However, given First Solar's large short interest ratio of about 26.7%, there may be an opportunity to generate profits on a price pop, as substantial negative news seem to be already built into its current price. Again, it is probably best to either buy calls, or possibly buy FSLR shares and hedge them through the purchase of puts.
It should be reiterated that buying share purely based on large short interest ratio is not necessarily a profitable strategy from a long term perspective. However, for the three stocks discussed in this article, when accompanied by other factors, this could prove to be a good buying opportunity, at least for the short term.