Short Seller Massacre: Wrong Or Just Early?

Well, since at YCharts we’re in the business of slicing and dicing data, when someone else does a smart job of putting information in the Cuisinart, we tip our hats: today’s Wall Street Journal article and statistical package on the blood letting among short sellers thus far in 2013 is a masterful piece of work.

In brief, the more short sellers ganged up on a stock, the better it seemed to do this year.

Among the top-ten-shorted stocks as of December 31, 2012 (as a percentage of shares outstanding) were Questcor Pharmaceuticals (QCOR) at 44%; Deckers Outdoor (DECK) at 43%; Zillow (Z) at 36%; and Herbalife (HLF) at 35%, according to the Journal.

QCOR Chart

QCOR data by YCharts

To say those four smoked the market is a huge understatement.

But people, let’s not assume the short sellers were wrong on these and other companies; we happen to like short sellers, as they often do great research and make the market a more efficient and enlightened place. Plus, they bring drama to investing.

So, the underlying businesses may indeed be full of rot; the competitive environment may be stacked against these particular companies and their managements. But timing is everything. And fighting the tape -- which in this case is a very exuberant investing environment and a broader market up double digits year-to-date -- is hazardous to one’s financial health.

Deckers, for instance, has been singled out by YCharts contributing editor Amy Merrick for harsh appraisal, and with good reason. Deckers’ cash management is highly suspect. It has been overly reliant on its ugly Uggs and needing a next act, product-wise. These are real problems, likely noticed in great depth by the money managers who shorted more than a third of Deckers stock at the beginning of 2013.

Sales have plateaued, and other metrics don’t look favorable, including profit margin.

DECK Revenue TTM Chart

DECK Revenue TTM data by YCharts

Yet, the stock has soared and done so on a valuation expansion, using trailing PE ratio. Someone thinks it was undervalued earlier.

DECK PE Ratio TTM Chart

DECK PE Ratio TTM data by YCharts

Time will tell. Until then, the shorts are hurting.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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