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9 Short Covered Stocks Undervalued By EPS Trends

Tickers in this article: CBI DV KBH NFLX RGR SAFM SWHC TAL TTWO

We created a screen for companies with significant decreases in shares shorted month over month. This signals optimism, or rather a lack of pessimism, from short sellers – a group of investors who benefit when share price falls. We then looked for those that appear undervalued relative to EPS trends. [More lists: Hodges Loves These 10 Blue Chips for Dividends and Long-Term Growth]

Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred. We screened for those exhibiting this mismatch between changes in EPS estimate and price.

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Short sellers seem to think these stocks have upside to price in, an opinion supported by EPS trends. Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List Average 1-Year Return: 27%. Compare returns with this interactive chart. Click through to access more free tools. 

1. Chicago Bridge & Iron Company N.V. (CBI): Provides engineering, procurement, and construction (EPC) solutions, as well as process technologies for the energy infrastructure projects. Market cap at $6.01B, most recent closing price at $57.02.  

Shares shorted have decreased from 5.85M to 3.50M over the last month, a decrease which represents about 2.39% of the company's float of 98.35M shares. Days to cover ratio at 1.89 days. The EPS estimate for the company's current year increased from 3.51 to 4 over the last 30 days, an increase of 13.96%. This increase came during a time when the stock price changed by 7.65% (from 52.97 to 57.02 over the last 30 days).