SE: 3 Stocks with RIDICULOUS Amounts of Short Interest

The stock market has been quite unpredictable this year, as the rally since March seems improbable given the economic impact of the coronavirus. The IMF has recently warned that the COVID-19 pandemic could continue for longer than expected.

While the coronavirus has harmed so many sectors, it’s had a positive impact on others. This includes Internet stocks. Their strong price gains have also led to concerns of overvaluation among investors who don’t believe the underlying business is as strong as implied by the stock price. So certain names have accumulated high levels fo short interest.

The short percentage of the float is defined as the portion of a company’s total available share for public trading (or floating shares) shorted by traders. The short percentage of the float for a stock with a long-term uptrend generally has a threshold of 25%. A high value could indicate a red flag for some stocks.

Sea Limited (SE), Carvana Co. (CVNA), and Stitch Fix, Inc. (SFIX) are three stocks that were severely shorted by the investors, pushing the short interest share above the threshold level. However, a short covering should help these stocks spike.

Sea Limited (SE)

SE engages in digital entertainment, e-commerce, and digital financial service businesses in Greater Southeast Asia. It provides Garena digital entertainment platform for users to access mobile and PC online games, and eSports operations. The company also operates the Shopee e-commerce platform, a third-party marketplace that connects buyers and sellers through the mobile app and websites.

The stock has gained more than 316% year-to-date. However, the stock tanked 2.8% yesterday to close the session at $167.63. SE has a short float of 33.48%, indicating that the stock has been highly shorted.

SE has been a breakout winner this year, as the stock has gained on booming growth driven by the pandemic in its digital gaming and e-commerce division. Consequently, the stock has been a target of profit bookings. Moreover, rising online sales are prone to new competition, and Amazon (AMZN) is among the most aggressive players in fighting for market share. Just a year into Singapore operations and it has gained significant market share outpacing local players.

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SE’s second-quarter report did not fail to impress the street. Total adjusted revenue was $1.3 billion, up 93.4% year-over-year as the e-commerce revenue grew 188% year-over-year. Gross orders totaled 615.9 million with an accelerated growth of 150% compared to the year-ago quarter. In the digital entertainment segment, quarterly active users reached 499.8 million during the quarter, increasing 61% from the year-ago quarter as paying users grew by 91.2% year-on-year to 49.9 million.

However, the company reported a loss of $0.48 per share, which is a significant improvement from the year-ago loss of $0.68 per share. SE was also due for a correction as it nears its next earnings release for its quarter ended September. The company is projected to report a loss of $0.52 per share, which indicates a year-over-year decline of 26.8%.

How does SE stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating.

It is also ranked #1 out of 58 stocks in the Internet industry.

Carvana Co. (CVNA)

CVNA is an e-commerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify a vehicle and inspect it using a 360-degree vehicle imaging technology. It operates as a subsidiary of DriveTime Automotive Group, Inc.

CVNA gained 131.6% year-to-date. However, the stock closed yesterday’s trading session at $213.22, after plunging 10.4% since October 1st. The short sellers formed 31.82% of the float. This indicates that the stock is highly shorted.

CVNA has been subject to insider trading and hence, the street discounted the news when its COO, Benjamin Huston sold $2.4 million worth of CVNA shares on the first trading day of October. CFO Mark Jenkins also sold 10,000 shares of CVNA stock on the same day at the average price of $240.25.

CVNA had an impressive second quarter (ended June 2020) as retail car units sold during the quarter increased 25% year-over-year to 55,098. It managed to generate a revenue of $1.12 billion, growing 13% year-over-year, despite the pandemic. However, the company is not profitable yet and reported a loss of $0.63 per share.

Moreover, the company was already facing inventory constraints, as used car demand unexpectedly soared during the previous quarter. Hence, analysts tracking the stock estimate CVNA’s EPS to decline by 13.6% in the current year.

CVNA is rated “Buy” in our POWR Ratings system with an overall grade of “B”. It has an “A” for Trade Grade, and “B” for Buy & Hold Grade and Industry Rank. It is ranked #13 out of 58 stocks in the Internet industry.

Stitch Fix, Inc. (SFIX)

SFIX is an online subscription platform and personal styling service provider that is reinventing the shopping experience by delivering one-to-one personalization to men, women, and kids through the combination of data science and human judgment via personalized selections of apparel, shoes, and accessories.

With a year-to-date gain of 27.2%, SFIX closed yesterday’s trading session at $32.64. The stock is up nearly 13.6% in the past month but witnessed a huge short position in the last week of September after the release of its fourth quarter results. SFIX has a short float of 39.8%, indicating that the stock has been highly shorted.

SFIX reported results for its fiscal fourth quarter ended August 1, 2020, on September 22nd. Net revenue of $443.4 million increased 11% year-over-year. Active clients increased by 9% year-over-year during the quarter to 3.5 million. Hence, net revenue per active client of $486 increased by 2% year-over-year.

However, the company reported a loss of $44.5 million. SFIX reported a loss of $0.44 per share largely missing the consensus loss estimate of $0.16 per share. Moreover, SFIX fell last month after AMZN expanded its shopping platform to include men’s fashion. Hence, analysts expect next quarter EPS to decline by 63.6% compared to the year-ago value.

SFIX has an overall rating of “Strong Buy” with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade. Among the 35 stocks on the Internet – Services industry, it’s ranked #8.

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SE shares . Year-to-date, SE has gained 320.93%, versus a 9.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...