Are the bears back? 6 stocks with high days to cover ratios

Are the bears back? 6 stocks with high days to cover ratios

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Short selling is on the rise. Stocks with high days to cover ratios indicate stronger buying pressure in the future.

Short sellers have gotten burned over the last few years as the S&P maintained yearly gains. However, there are signs that this year could be better for the bears as short interest climbs to two-year highs.

Bearish bets against some technology ETFs are up as much as 67% this year, and short interest in the S&P 500 is at its highest levels since 2012. 

Short selling is a type of trade that you can make when you believe the market will go down. Though often cited as a marker of pessimism, the bet is actually a lot riskier than trading a security on the impression its value will go up. 

Short sellers face the possibility of an unlimited loss. You profit from falling shares by borrowing them from a broker, selling them, and then buying them back at a lower price. If the share price goes up after you sell it and keeps going up, there's no limit to the amount of money you can lose. 

One of the ways you measure that risk is by looking at the days to cover ratio. It measures the amount of shares shorted against the total volume of the stock and says approximately how many days it would take for all the short-sellers to cover their positions. 

The higher the ratio, the longer it would take for sellers to cover their losses, sending the share price further and further up in the process. Stocks with high ratios are a favorite target for contrarian investors because high buying pressure can increase demand for shares if the company in question gets good news. 

We built a list of stocks by looking at companies with a price to equity (P/E) ratio above 50, which is considered high. We then screened those for stocks with spikes in short-selling of at least one percent. We then screened that list further for a days to cover ratio above 7 days, which is considered high. 

This left us with 6 companies on our list. Do you think the bears are right, or will they get caught in a short-squeeze? Use the list below to begin your analysis and let us know what you think in the comments.

Click on the interactive chart to view Forward P/E over time. 

1. Abiomed Inc. (ABMD, Earnings, Analysts, Financials): Engages in the research, development, and sale of medical devices that provide circulatory support to acute heart failure patients across the continuum of care in heart recovery. Market cap at $933.96M, most recent closing price at $23.39.  

Shares shorted have increased from 7.41M to 7.99M over the last month, an increase which represents about 1.75% of the company's float of 33.21M shares. Days to cover ratio at 17.34 days.

 

 

2. Brinks Co. (BCO, Earnings, Analysts, Financials): Provides secure transportation, cash logistics, and other security-related services to banks and financial institutions, retailers, government agencies, mints, jewelers, and other commercial operations worldwide. Market cap at $1.36B, most recent closing price at $28.02.  

Shares shorted have increased from 5.21M to 5.90M over the last month, an increase which represents about 1.54% of the company's float of 44.68M shares. Days to cover ratio at 9.47 days.

 

 

3. Cray Inc. (CRAY, Earnings, Analysts, Financials): Engages in the design, development, manufacture, marketing, and service of high-performance computing (HPC) systems, known as supercomputers. Market cap at $1.06B, most recent closing price at $26.13.  

Shares shorted have increased from 2.92M to 3.68M over the last month, an increase which represents about 2.07% of the company's float of 36.76M shares. Days to cover ratio at 9.97 days.

 

 

4. Ellie Mae, Inc. Common Stock (ELLI, Earnings, Analysts, Financials): Ellie Mae, Inc. and its subsidiaries host electronic mortgage origination network in the United States. Market cap at $780.61M, most recent closing price at $27.77.  

Shares shorted have increased from 4.21M to 4.65M over the last month, an increase which represents about 1.82% of the company's float of 24.22M shares. Days to cover ratio at 10.85 days.

 

 

5. Impax Laboratories Inc. (IPXL, Earnings, Analysts, Financials): Engages in the development, manufacture, and marketing of bioequivalent pharmaceutical products. Market cap at $2.01B, most recent closing price at $28.74.  

Shares shorted have increased from 1.98M to 5.18M over the last month, an increase which represents about 5.53% of the company's float of 57.91M shares. Days to cover ratio at 8.91 days.

 

 

6. Landauer Inc. (LDR, Earnings, Analysts, Financials): Landauer, Inc. and its subsidiaries provide technical and analytical services to determine occupational and environmental radiation exposure. Market cap at $453.91M, most recent closing price at $47.53.  

Shares shorted have increased from 369.56K to 486.58K over the last month, an increase which represents about 1.25% of the company's float of 9.33M shares. Days to cover ratio at 14.18 days.

 

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, all other data sourced from Yahoo! Finance.)

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