A short squeeze can occur when a company with a high short interest receives increased demand for its shares, sending the share prices higher. Those short sellers end up adding to demand if some or many of the shorters end up buying shares to cover their short positions. Short squeezes do not have to occur simply because a large short position exists, but equities with higher short rates are more likely to spike upwards, perhaps merely temporarily, due to this squeezing of covering shorts.
Short squeezes are more likely to occur in stocks with small market capitalization and small public floats, as such equities are more likely to create a bottleneck situation when multiple shorters simultaneously opt to cover. Larger and more liquid stocks are more difficult to squeeze because there is more likely to be a healthy market, full of both sellers and buyers.
Below I have listed six companies with large short positions that are scheduled to report earnings for the third quarter of 2011 on Monday, November 7, 2011. The companies are listed in alphabetical order. A strong earnings surprise, potentially coupled with other good news from within the company and/or the global marketplace, could act as a catalyst for a short squeeze. Conversely, disappointing news may provide some of those shorters a gain.
BroadSoft, Inc. (BSFT) provides software for voice, data and multimedia services over the Internet. Earnings should be reported on Monday, November 7, 2011. Approximately 29.8 percent of BroadSoft’s shares are sold short. BroadSoft is now valued at slightly below $1 billion. The company has performed well since the steep sell-off that occurred at the start of August. See BroadSoft’s recent chart below (click to enlarge images):
Eagle Bulk Shipping, Inc. (EGLE) provides dry bulk transportation services. Market cap of $90.23M. Earnings should be reported on Monday, November 7, 2011. Approximately 11.3 percent of Eagle Bulk Shipping’s shares are sold short. Eagle Bulk Shipping is valued at a $90 million and has performed poorly in 2011, along with the rest of the shippers. See Eagle Bulk Shipping’s recent chart below:
Ebix Inc. (EBIX) provides business software and related services to the insurance industry. Earnings should be reported on Monday, November 7, 2011. Ebix is now valued at about $650 million. Approximately 33.24 percent of Ebix’s shares are sold short. Ebix was trending downward since April of this year, reversing that trend over the last couple of months, though recently creating a double top. See Ebix’s recent chart below:
GAMCO Investors, Inc. (GBL) is an investment management company. Earnings should be reported on Monday, November 7, 2011. GAMCO is now valued at about $1.18 billion. Approximately 15.87 percent of GAMCO’s shares are sold short. GAMCO has been range bound recently and appears to have had a slight short covering episode about a week and a half ago. See GAMCO’s recent chart below:
GT Advanced Technologies Inc. (GTAT) provides manufacturing services to the solar industry. Earnings should be reported on Monday, November 7, 2011. The company is now valued at about $1.12 billion. Approximately 15.91 percent of GTAT’s shares are sold short. GTAT was in a significant downward trend from July through October, but appears to have since stabilized, at least temporarily, showing the makings of a possible trend reversal. See GTAT’s recent chart below:
Priceline.com Inc. (PCLN) is an online travel services company. Earnings should be reported on Monday, November 7, 2011. Priceline is worth about $25.5 billion. Approximately 8.02 percent of Priceline’s shares are sold short. Priceline has been range bound since the start of the second quarter, and appears to be approaching the top of its recent range. See Priceline’s chart below:
Do keep in mind that many short investors are savvy investors, and a high short interest is likely an indication of some smart money betting against these equities. Short selling is often used to hedge a portfolio, to take advantage of companies in industries that are coming out of cycle and to bet against companies whose businesses are perceived as illusory. Many short sellers do comprehensive research on such matters and buyers should certainly be as diligent.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: This article is intended to be informative, and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.