Tuesday, March 20, 2012

The Most Heavily Shorted Stock in America (TEA; GMCR)

We have no interest in retailers but get intrigued when everyone rushes to the same side of the boat.
From Frankly Speaking:

Teavana Holdings: Reading the Tea Leaves of the Most Shorted Stock in America ($TEA, $NFLX, $GMCR)
Teavana Holdings, Inc (NYSE: TEA) is a specialty retailer of premium loose-leaf tea and related merchandise. The company was founded in 1997, received venture investment in 2004 and went public just under a year ago, at the spectacularly bad time of mid-summer 2011. Today, the company is down around 16% from its initial trading levels, and  it is the most heavily shorted stock in America, with 76.6% short interest.
This is interesting, because the company has only reported two quarters worth of data as a public company. ...These must have been atrocious quarters, right? Let’s take a look....
On one hand, the company appears to be performing quite well by any reasonable standard and the future looks quite rosy as well, with high growth potential in a largely untapped market with growing demand. On the other hand, a number of market participants believe the company is headed for decline and are putting their money behind a short bet. So what gives? Valuation.

TEA is one of the most overpriced companies in America. Its share price premium makes any results, even great results, pale in comparison. Consider this: the company is trading at a price to earnings of 62x and a price to book value of a whopping 16.6x. By any objective measurement, the company is overpriced relative to its actual (strong) performance by an astonishing amount, meaning that there is a large amount of expectations built into its current share price. Even after 76.6% short interest, the bulk of investors in TEA expects the company’s future growth to exceed its historical growth and by a significant amount....MORE