Short selling is an interesting facet of the market, in part because it is the only kind of securities trade where anything can be assumed with certainty. Unfortunately this doesn't regard a stock's price, profitability, or the likelihood that either will go up or down. However, a trader can be completely sure that stocks that have been shorted must be covered.
What does that mean for potential investors? Short selling occurs when an investor borrows and sells shares of a stock which he or she believes will go down. If the stock price does indeed decline, then he can buy back the shares at a reduced price and return them to the person he borrowed them from. The difference in the two prices goes into the pocket of the person who short-sold the stock. There is no mandatory timeline on when the seller must buy back the shorted stock – however if the price begins to rise he may have to buy to cover, or purchase back the shares before they hit their original price.
You can asses the risk of a short sale by looking at the days to cover ratio, which is a measurement of the ratio between a company's shares that are currently being shorted against its average daily float. Short selling, in addition to driving down a price by creating negative speculation about a company's wellbeing, can also paradoxically make a stock more valuable. This happens when a stock becomes too shorted, and sellers simultaneously try to cover their borrowed shares. This can create a spike in demand that accidently drives up the price. This is called a short squeeze. A higher days-to-cover ratio increases the possibility of this happening.
To create the list below, we ran a screen on stocks that are experiencing short increases, and focused our analysis on stocks that have experienced at least a 1% spike in short-sold shares during the last month. To look for stocks that might be on the rise, we cross-referenced this search to include stocks that have experienced long-term-growth over the last five years.
Are the markets correct or are these prices likely to bounce back? Use the charts below to begin your own analysis.
Shares shorted have increased from 10.07M to 10.61M over the last month, an increase which represents about 1.67% of the company's float of 32.39M shares. Days to cover ratio at 6.9 days.
Sales growth in the past five years: 36.00%.
2. Green Plains Renewable Energy, Inc. (GPRE, Earnings, Analysts, Financials):Engages in the production, marketing, and distribution of ethanol and related distillers grains in the United States. Market cap at $525.02M, most recent closing price at $17.54.
Shares shorted have increased from 2.31M to 2.59M over the last month, an increase which represents about 1.15% of the company's float of 24.28M shares. Days to cover ratio at 5.81 days.
Sales growth in the past five years: 170.10%.
3. Titan Machinery, Inc. (TITN, Earnings, Analysts, Financials):Operates a network of full service agricultural and construction equipment stores in the United States. Market cap at $434.39M, most recent closing price at $20.83.
Shares shorted have increased from 5.09M to 5.64M over the last month, an increase which represents about 3.25% of the company's float of 16.94M shares. Days to cover ratio at 13.01 days.
Sales growth in the past 5 years: 38.40%.
4. Two Harbors Investment Corp. (TWO, Earnings, Analysts, Financials):Operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS) and related investments. Market cap at $3.09B, most recent closing price at $10.12.
Shares shorted have increased from 9.45M to 13.68M over the last month, an increase which represents about 1.17% of the company's float of 363.01M shares. Days to cover ratio at 1.91 days.
Sales growth in the past 5 years: 213.60%.
Shares shorted have increased from 5.18M to 5.58M over the last month, an increase which represents about 1.8% of the company's float of 22.28M shares. Days to cover ratio at 7.56 days.
Sales growth in past 5 years: 75.1%.
(List compiled by James Dennin. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- Ebix Inc.(EBIX, Chart, Download SEC Filings)
- Green Plains Renewable Energy, Inc.(GPRE, Chart, Download SEC Filings)
- Titan Machinery, Inc.(TITN, Chart, Download SEC Filings)
- Two Harbors Investment Corp.(TWO, Chart, Download SEC Filings)
- Zillow, Inc.(Z, Chart, Download SEC Filings)
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