3 reasons Skullcandy will go back to $14 and higher.
1. Even if Skullcandy will not grow, it is valued as a value stock.
There is 0 reasons for shortsellers to be stuck with the stock that doesn't move down big time.
So they will cover, and that is 10,000,000 shares that they need to find. Only this will propel the stock to $12-$14.
2. Possible acquisition. Skullcandy is a very cool company. They have a brand that popular with youngoo people and kids. For companies like SONY to buy a competitor for $300mil, would be a very good deal. They will get much needed cool factor and get more flexibility on pricing.
Disclosure: I am LONG Stock and Long Term Options until $12-14, will add stock and long term in-the-money options on pullbacks.
Good luck to everybody.
You are making the assumption that people who shorted the stock have shallow pockets and are fully allocated. The stock was somewhere at 10,000,000 shares shorted at one time, or somewhere around $100M when it was at that level (don't know for certain, just grabbing from memory, but likely ball park). Now they are at 5 million short or ~ $35M. They have a huge war chest. Not sure any fund or group wants to risk huge capital to go toe to toe with that massive stake.
A. Short sellers who dumped at 20 are just fine with a stock that doesn't move any farther down than 7. Look at an extreme case: What if I sold short at 20 and the stock sits at 7 forever? Then I have $13 tax free -- as long as I never close the position. At 20 shorts were just betting that growth would slow down substantially. When I cover, I have to pay tax.
I periodically take money on heavily shorted stocks. So this whole set-up looks familiar, journalists pan the stock, analysts repeatedly (and always too late) adjust their "targets" to whatever the pps currently is, etc.
And ... there is always a lot of talk from longs about how the short interest represents "demand." While on paper that might be true, it's important to realize that the short-interest "demand" is *not a factor* while most shorts are far in the money. If the stock hits $18, shorts may get a little freaked and start covering. I'll be long gone if it happens, for me this is $10-$15 in value, but that would be the time to rely on shorts for demand.
B. But now, shorting at 7 times earnings, that is a totally different game. Not many people are gonna want the long-term bet there.* So they have to go in and out frequently, trying to exploit news, perceptions, price patterns. To folks who are thinking value, the low-price shorts have very little net effect on supply and demand. They short, they cover, they short again, etc.
*I.e., a long-term short bet at 7x eps is a bet not just on slowed growth, but on a major earnings collapse. That's a bet you can make, but unless I'm missing something surely the odds are against it: less than a 50/50 probability. And over time shorting when the odds are against you doesn't work, the payout on shorting doesn't go high enough. If LEAP puts were cheap enough, that's another story. But the volume there is too small to matter.
To keep shorting stock with P/E of 6 and market CAP of $170 MIL doesn't make sense for me
1. There are tons of stocks with P/E 1000 or worse NFLX, WDAY, AMZN,CRM, N
2. Just thinking that some fund can buy all options and then start buying stock. All they need is $50-$100MIL and make shortsellers cover at whatever they want to let them out $20-$30-$50
makes shorting this stock extremely risky proposition. Shorts will cover and stock will go to
$12-$20. Hopefully Andrus will use his new job connections to squeeze shorts to that price.