Although the Nasdaq Composite is the only major U.S. index that’s nowhere near its all-time high, it still turned in an impressive gain of 8.2% for the quarter. Gains were broad-based, with everything from technology and health care to energy and financials helping the index.
| Company | Short Interest As a % of Shares Outstanding |
|---|---|
| Coinstar, Inc. (NASDAQ:CSTR) | 50.12% |
| Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) | 44.47% |
| Questcor Pharmaceuticals Inc (NASDAQ:QCOR) | 43.10% |
| UniPixel Inc (NASDAQ:UNXL) | 42.73% |
| SodaStream International Ltd (NASDAQ:SODA) | 39.96% |
Source: S&P Capital IQ.
As we’ve done previously, I suggest we look at the various reasons why short-sellers may have homed in on these five companies and decide whether the pessimism is justified.
Coinstar, Inc. (NASDAQ:CSTR)
Why are investors shorting Coinstar?
The reason short-sellers have barreled into Coinstar has to do with the company’s reliance on the DVD-rental business and the expectation that its sales will shrink in a similar fashion to Netflix, Inc. (NASDAQ:NFLX)‘s DVD sales. Coinstar’s most recent quarterly profit blew past estimates, and it did forecast revenue growth of 12% at the midpoint for its current fiscal year, but the proliferation of streaming services is expected to take a big bite out of Coinstar’s margins.
Is this short interest deserved?
Having 50% of the outstanding shares being held short as a short-squeeze is a genuine concern, but I can definitely understand the pessimism surrounding Coinstar. If Coinstar’s margins are anything like Netflix’s, then its DVD business generates double the margins that the streaming business will in a like-for-like comparison. This means Coinstar, Inc. (NASDAQ:CSTR) probably has a few years of growing pains in its immediate future.
Spectrum Pharmaceuticals
Why are investors shorting Spectrum Pharmaceuticals?
Short-sellers had already been skeptical of Spectrum Pharmaceuticals’ palliative metastatic colorectal cancer treatment, Fusilev, long before the stock nosedived in March. Generic competition for the drug was available, but shortages of those generics had encouraged Spectrum’s management to expect sales growth in 2013. That turned out to be all for naught, as Sagent Pharmaceuticals Inc (NASDAQ:SGNT) stepped up to fill the generic void and Spectrum lowered its full-year sales forecast by 40% to 47% at the top and bottom end.
Is this short interest deserved?
As much as I’d like to think that traders overreacted to Spectrum’s warning, the massive reduction in Fusilev sales is going to push the company into the red in 2013 and may it keep it there for some time. Folotyn and Zevalin could help move Spectrum back to a profit as soon as next year, but the uncertainties surrounding Fusilev, by far its biggest revenue generator, are too great to suggest buying in even here.
