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ITT Educational Services Inc. Message Board

  • oxledge oxledge Aug 21, 2012 3:09 PM Flag

    Shorts are covering at these prices

    Loks to me like the shorts are covering at the current prices. The short position on ESI has worked out with the recent two week decline from $55 to $32. The short shad already reduced their total position from roughly 1 million shares to 7.2 million shares, a 34% reduction. We wil have to wait to see what the new short interest figures look like in order to confirm my suspicions. The institutionalized hedge fund short sellers are usually pretty smart folks, and they have been correct on ESI's stock price given the recent drop. However, I still believe that the shorts got lucky as ESI's earnings per share are down from the $11 per share high level of 2011 to a forecasted $8 - 9 per share this year, the earnings guidance for 2012 is well above where it was at the start of 2012 and the company has bought back huge amounts of stock this year. Where the shorts got lucky is in the valuation as when ESI shares at $75 they were valued at 10 times the start-of-the-year 2012 forecast. Now the estimates, having been raised, are for $8 - 9 per share, and the stock is trading at 3.7 times the midpoint of the raised estimate. The enterprise value/EDITDA for ESI is at an incredibly low 1.80. When companies get bought out, the pundits usually cite EV/EBITDA values of 7.0 - 10.0x. At the low end of this EV/EBITDA valuation metric, ESI shares would trade at $124.

    ESI's stock has been blown out and I suspect that there are alot of people that are simply too spooked to get back in. Repairing this type of drop can take some time although the duration depends on the circumstances. Stocks always go up more slowly than they fall, which is a disadvantage to players in the market.

 
ESI
3.97-0.20(-4.80%)Jun 30 4:04 PMEDT