3 Shorted Stocks Too Cheap to Sell
NEW YORK ( TheStreet) -- With an eerie quiet on the U.S. deals front, takeover premiums have been wiped from many companies in the M&A rumor mill. But for some highly-shorted companies, valuations may be at a point where takeover interest is more likely, making for a risky short even if fundamentals continue to deteriorate.
In a screen of heavily shorted stocks with low enterprise values relative to earnings before interest, taxes, depreciation and amortization, information provider Data Explorers was able to identify 61 companies with a short interest over 10% and swooning valuations. Data Explorers screened around the world for highly shorted companies with low or falling valuations and a market cap above $1 billion.
"Companies which have seen a fall in their share prices in the last year implies profits for short sellers, yet their low valuations could make them a potential acquisition target. Should this happen, a short seller would be exposed to any takeover premium offered by bidders," wrote Data Explorers in a March 3 report.
Data Explorers arrived at over 60 names scattered across the world, however five stand out as battleground stocks either because of their valuation, short interest or previous M&A speculation.
Here's a look at three shorted stocks that may be too cheap to sell, according to Data Explorers
For more on deal activity and trends, see 10 Companies Primed for a Post-Bankruptcy Comeback and 5 Tough Sells in the Tech Sector. For more on M&A bankers and pending deals, see why 2012 deals hinge on Goldman's idea of fairness .
3. Veeco Instruments (VECO)
As of Data Explorers' screen published earlier in March, light emitting diode
The Plainview, N.Y.-based designer of LED and solar systems currently has a low enterprise-value-to-EBITDA ratio of 2.0 to go with a short interest that's over 35% of outstanding shares, making it the most shorted company among possible takeover targets highlighted by Data Explorers. Already, a near-40% 2012 surge in Veeco Instruments shares has likely been tough to bear for shorts.
Nevertheless, huge questions remain for the company's 2012 earnings, as it tries to curtail an over-40% share lull in the last 12 months.
Analysts polled by Bloomberg give Veeco Instruments a price target of $27.40 a share, on an expected plummet in 2012 sales and profitability. Veeco is expected to see its sales fall by nearly 50% to $534 million, cutting profits by over two-thirds to $36.71 million, according to consensus analyst estimates.
Still, the company's falling stock value could spur an opportunistic private equity or strategic acquisition, according to previous analyst speculation.