The reason AZO went up in the first place was that the company was buying back stock like crazy with borrowed money, so the number of shares went down every Q. Today, with the current credit crunch, you just can't buy back stock by taking on more debt. It was bound to happen sooner or later. Looking forward it doesn't look any better. Retail is suffering, and those with weak balance sheets like AZO will suffer the most. Wait and see.
Yahoo Finance short data is dated (as of 8/10)...shortsqueeze.com has it at 5.2 (as of 8/21, $10 ago)...based on recent slide, I suspect that % has climbed...although still relatively low vs. other sectors, all it will take is a "meet" or slight "miss" on earnings and I see a mild short cover rally...and even a small one works for me.
AZO's ROA, ROE, int coverage ratio and margins over the last several quarters look reasonably good. Am I missing something? I've had tremendous success over the last several weeks going long on oversold (mostly overly shorted) stocks just prior to earnings release (I'm up over 40% since 8/1...recent examples being JOSB and LEH). This certainly looks like another good prospect.
If and when the fed lowers rates, it doesn't mean that AZO can borrow more easily. Risk premiums can stay very high, even when the non risky rates are low. In many cases, low fed rates are sign of a recession, and low opearting profits for companies, and that's exactly when lenders are the most risk adverse. Don't mix low fed funds with low borrowing costs for co's who have a weak balance sheet like AZO.
If what you say is true, then if the Fed lowers rates, that will ease the credit crunch. Plus this stock is already way oversold. MACD shows a weakening in the selling conditions, also. It's not easy to spot but it's there. Any positive news from AZO (meaning cutting costs) will be seen as a positive for Wall Street. Easier to bet short on a stock that hasn't fallen over 20%.