Every so often, there is a substantial change in the environment that upsets the status quo. Climate change kills the dinosaurs, digital cameras result in no film, ordering on the internet becomes so easy that fixed location retailers can't survive.
There was no stock market around when the dinos disappeared, and you may have missed the destruction of Eastman Kodak's business down to the point of bankruptcy.
But there is still a chance to make money on the last thing mentioned above. Big box retailers are suffering, and will continue to suffer. Someone recently made the comment that Best Buy (BBY) is a showroom for Amazon (AMZN). I would also like to add HHGregg (HGG) to that mix.
Both BBY and HGG have been beaten down over the last year, trading just above their 52 week lows when the rest of the market is near 4 year highs. They are a dying breed and deserved to shorted to extinction.
A couple caveats: They are possibly takeovers, particularly Best Buy, of which there have been discussions of a management buyout. Also, they are heavily shorted, so short squeezes are possible.
This recommendation? Short them on any pop, It may take a long time for them to completely disappear, but it will happen. History tells us so.
Tuesday, October 16, 2012
Monday, October 15, 2012
Skull Candy
Skull Candy (SKUL) is currently at the top of the short interest list. They make headphones and other audio equipment. A nice little manufacturer, the only problem with this company is it's valuation.
It sells at 1.32 times sales. Not profit, mind you, but sales. It has a nice gross margin of 50%, but in a competitive industry, that is not likely to continue, as competition will drive down prices, reducing margins.
The risk with any stock this heavily shorted is the danger of a short squeeze. There are so many shorts that if there is any positive news, the weak shorts will cover and drive the price up suddenly. You really need to wait for a pop in the price (the short squeeze) to short here. The stock is way overpriced and if the company continues to grow, it will take years to grow into this evaluation.
The more likely scenario is that the stock price will drop to match the current valuation. Enjoy the ride.
Disclosure: I don't own this stock, and never would. I currently have no position.
It sells at 1.32 times sales. Not profit, mind you, but sales. It has a nice gross margin of 50%, but in a competitive industry, that is not likely to continue, as competition will drive down prices, reducing margins.
The risk with any stock this heavily shorted is the danger of a short squeeze. There are so many shorts that if there is any positive news, the weak shorts will cover and drive the price up suddenly. You really need to wait for a pop in the price (the short squeeze) to short here. The stock is way overpriced and if the company continues to grow, it will take years to grow into this evaluation.
The more likely scenario is that the stock price will drop to match the current valuation. Enjoy the ride.
Disclosure: I don't own this stock, and never would. I currently have no position.
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