Heavily shorted stocks in companies with sustainable with earnings momentum have produced accelerated losses for the professional shorts. Some stocks have large enough short positions that the position has become impossible to cover without a tremendous price appreciation in the security.
These are companies whose prices have exploded due in part to the large short position.
- Priceline.com (PCLN), LOW: $411 - High $736
- Netflix (NFLX), Low: $62.37 - High: $304.78
- Amazon (AMZN), Low: $166 - High: $246
- Google (GOOG), Low: $473 - High: $670
- Firesource (FIRE), Low $23.20 - High: $50.74
- Buffalo Wild Wings (BWLD), Low: $52 - High: $94
- Green Mountain Coffee (GMCR), Low: $34 - High: $115
I scour the universe of stocks, looking to invest in special situations that are very likely to yield a short squeeze. What follows are the factors I base my short squeeze investments on.
1. Shorted shares, institutionally held shares, and closely held shares (Form 3 & and Form 4 filers), when added together, must equal over 100% of the company's outstanding shares.
2. Short interest must be over 30% of the float.
3. Institutional holdings must be over 40% of the outstanding shares.
4. The company does not have any short term financing plans.
5. There must be at least three credible Wall Streets analysts following the company.
6. The company must have a history of giving guidance and a track record of meeting or exceeding the guidance.
7. The company needs two years of rapid growth (20% year over year) and two years of similar growth projected
8. There must be at least 400,000 shares a day in trading volume.
ZAGG, Inc. (ZAGG)
Zagg designs and manufactures accessories for the smart phone and tablet market. Zagg is the leading smartphone accessory player in the US. They sell the InvisibleShield screen protector for Apple and Android products. Zaggs holds the US patent for protecting electronics with film. ZAGG's core product is their Invisible Shield screen protector.
ZAGG owns iFrogz, a major case and accessory seller. ZAGG also sells keyboard cases for the tablet market and has partnered with Logitech (LOGI) selling co-branded iPad keyboard cases throughout the Apple Stores.
ZAGG also holds 47% interest in HZO which is a venture capital backed company that designs a nanotechnology coating that protects devices from damage by water and moisture. That's right - HZO is making it possible to waterproof your phone.
What follows here are the reasons why I believe ZAGG is a great investment:
1. There are 31 million Shares outstanding, of which there are, 9.4 million shares short. Institutions own 12.1 million shares, and insiders own 10.5 million shares. This adds up to 32.5 million shares, 1.5 million shares more than what is currently outstanding.
2. The last three years of revenues are $38.1 million, $76.1 million and $179.1 million and projected revenue in 2012 exceeding $250 million.
3. There are four analysts following the company all having buy recommendations with a consensus price per share estimate of $21.
4. Analysts are projecting 2012 earnings of $0.80 versus $0.63 in 2011.
5. ZAGG has met or beat the street estimate for six quarters in a row.
6. The current short position is 42.29% of the float according to ShortSqueeze.com.
7. ZAGG has a PEG ratio of .55.
Skullcandy, Inc. (SKUL)
Skullcandy is a lifestyle products company selling distinct audio branded headphones and other smart phone accessories. Skullcandy brings color, character, and performance to what has been a monochromatic space. They co-brand products with the NBA and other sporting venues. They also recently announced a line that links with runway model Kate Upton.
While the shorts have made a point of dismissing the value of a brand, I suggest they check out Nike (NKE) and Lululemon Athletica (LULU). Neither company designs and manufactures a product that can't be copied and reproduced; however, each company is a master at marketing their product and placing it in the correct channels to maximize revenues. Skullcandy has the same type of branding appeal and with the massive short interest is poised for a classic short squeeze.
Here are the reasons why I believe Skullcandy is a great investment:
1. Skullcandy has 27 million shares outstanding, of which there are 8.7 million shares short. Institutions own 13.3 million shares, and major holders (Form 3 and Form 4 filers) own 10.2 million shares. This adds up to 34.2 million shares, 7.2 million shares more than what is currently outstanding. The short interest is approximately 60% of the float.
2. Skullcandy is followed by 8 analysts all having buy recommendations with a consensus price per share estimate of $22 and a high of $28.
3. The last three years revenues were $118 million, $160.5 million, $232.4 million, and projected revenues for 2012 are $280 million.
4. There has been recent insider buying in the company's stock.
5. Skullcandy has beaten the consensus earnings estimate in the 3 quarters they have been public.
6. Earnings were $1.00 per share in 2011 and are projected between $1.15 and $1.20 a share in 2012. Earnings are projected at $1.43 in 2013.
7. The PEG ratio is .59
The Elephant in the Room
Both of these companies are an alternate play in Apple and the smartphone and tablet market. The global accessory market in 2010 was $26.5 billion and is growing to $50 billion in 2015. This is the fastest developing industry in history.
Investors dream of participating in the elusive short squeeze. These companies offer the opportunity to do it!