Do you consider yourself a contrarian investor, always looking for opportunities against the herd? For ideas on how to start your own contrarian search, we ran a screen.
We began by screening the retail industry for stocks with currently bearish sentiment, with float shorts above 10%.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these 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)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the 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 deserve to be highly shorted? Use this list as a starting point for your own analysis.
List sorted by float short.
1. Vera Bradley, Inc. (VRA): Engages in the design, production, marketing, and retail of functional accessories for women under the Vera Bradley brand. Market cap at $1.05B, most recent closing price at $24.21. Float short at 51.56%. MRQ net profit margin at 14.94% vs. 13.01% y/y. MRQ sales/assets at 0.613 vs. 0.531 y/y. MRQ assets/equity at 1.77 vs. 3.203 y/y.
2. Saks Incorporated (SKS): Operates fashion retail stores in the United States. Market cap at $1.7B, most recent closing price at $10.40. Float short at 18.76%. MRQ net profit margin at 4.% vs. 2.88% y/y. MRQ sales/assets at 0.435 vs. 0.404 y/y. MRQ assets/equity at 1.764 vs. 1.842 y/y.
3. Vitamin Shoppe, Inc. (VSI): Operates as a specialty retailer and direct marketer of nutritional products. Market cap at $1.29B, most recent closing price at $51.80. Float short at 10.44%. MRQ net profit margin at 4.38% vs. 3.31% y/y. MRQ sales/assets at 0.438 vs. 0.371 y/y. MRQ assets/equity at 1.379 vs. 1.632 y/y.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
