5 Longs Of The Shorts: Deckers Outdoor Corp (DECK), Tesla Motors Inc (TSLA), Skullcandy Inc (SKUL)

Page 1 of 2

Investing in highly shorted stocks is always risky business, especially when these stocks have some of the highest short interest around. The five stocks below all have short interest in excess of 40%, but could be worth taking a look at on the long side. One slight problem with highly shorted stocks is that they are sometimes shorted for a reason. Question is; is the short interest overdone and is their reason to go long any, or all, of these stocks? The five stocks below are highly shorted, but could be worth a closer look for investors looking to add a little speculation to their portfolio.

Tesla Motors Inc (NASDAQ:TSLA)All the high-short stocks appear to be cheap from a valuation standpoint, but could this be due to an overpressured stock price, let’s take a closer look. Over the past twelve months, Skullcandy Inc (NASDAQ:SKUL), Vera Bradley, Inc. (NASDAQ:VRA and Deckers Outdoor Corp (NASDAQ:DECK) are all down over 20%, but Coinstar, Inc. (NASDAQ:CSTR) and Tesla Motors Inc (NASDAQ:TSLA) are up.


Stock Performance
Skullcandy Vera Bradley (NASDAQ:VRA) Deckers Coinstar Tesla
Trailing Twelve Months -43% -24% -51% 16% 66%
Five Years -64% -6% 0% 100% 97%

Skullcandy Inc (NASDAQ:SKUL) has 53%short interest and manufactures headphone and other audio products. The stock is down nearly 40% over the last twelve months and hedge fund interest has been relatively weak for the headphone company. The squeeze, short squeeze that is, has been coming for some time, but Skullcandy is still waiting. The stock is down over 50% over the last six months alone despite meeting or beating earnings in each of the last four quarters. This company is like a number of others below, still growing and still profitable, but getting little attention from long investors, and a lot of attention from shorts. The slowdown may well be attributed to the over-focus of its business model, which relies heavily on consumer discretionary spending. However, with declining unemployment and an improving economy, the company should be able to achieve its projected (by Wall Street analysts) 18% five-year annual earnings growth.

With a market cap of only $180 million, Skullcandy could also be the target of a buyout. Bloomberg even reported that the sharp decline in the stock in the past eighteen months has made the company an attractive takeover target. Skullcandy’s long-term initiatives relate to its plans to expand beyond the U.S., which has been its primary market. Skullcandy is trading at a 7 times earnings, where the industry is near 12 times. Other key metrics that bode well for the valuation includes its S&P relative value. Compared to the S&P 500 price to earnings ratio, Skullcandy has traded at 98% of the S&P 500 P/E over the last five years (on average), but now only trades at 47%.

Vera Bradley, Inc. (NASDAQ:VRA), with around 53% short interest, is a designer and producer of accessories for women, including handbags and leisure items. Vera also has billionaire Steven Cohen as one of its top investors (check out all the hedge funds loving Vera). Vera recently upped its fourth quarter 2012 revenue and earnings guidance, as well as gross margin expectations, now expected to expand 140 basis points for the quarter, year over year. Much of company’s previous weakness has been related to inventory buildup; a problem that management has identified and foresees no issues in being able to move this year. Despite consumer spending weakness in the past, Vera plans to capitalize on an improving economy and even added 54 locations in Dillard stores during the third quarter. Other expansion efforts includes its early-stage entry into Japan. Vera, much like Skullcandy, looks cheap on a relative S&P 500 P/E basis. The company has traded around 150% of the S&P 500 P/E over the last five years, but currently trades at 105%. Vera also boosts one of the top returns on equity at 44%, compared to 16% industry average.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!