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Top Restaurant Short-Squeeze Plays

Stockpickr Staff

One industry recently exhibiting a lot heavy short interest is the restaurant group. These stocks have been viewed negatively due to the high cost of commodities, especially in corn-based products due to the extensive production of ethanol.

On the plus side, this trend creates some interesting potential short-squeeze opportunities. A short squeeze takes place when a stock's short-sellers are forced to cover their bearish positions quickly as a stock's price rises on positive news. This short-covering, in turn, drives the price of the stock even higher.

The ratio for measuring a short-squeeze play is the short ratio, which represents the number of days it would take a stock's short-sellers to cover their positions based on the stock's recent daily average trading volume.

Stockpickr has come up with the Top Restaurant Short-Squeeze Plays, a list of heavily shorted stocks in the sector that could rise quickly on any positive catalyst.

One of the stocks in the group with a high short ratio is PF Chang's China Bistro PFCB, which has a short ratio of 18. This owner and operator of P.F. Chang's China Bistro and Pei Wei Asian Diner restaurants just raised its full-year earnings forecast. Despite a decline in first-quarter earnings, results still beat Wall Street expectations. The stock has a price-to-earnings ratio (P/E) of 25 and a P/E-to-growth (PEG) ratio of 1.3.

PF Chang's stock is owned by the First American Small-Cap Select Fund, a five-star Morningstar-rated fund managed by Allen Steinkopf. The fund also holds shares of Helix Energy Solutions HLX, which has a short ratio of 3.6, WMS Industries WMS, which has a short ratio of 4.6, and SonoSite SONO, which has a short ratio of 17.

Another stock with a high short ratio is Domino's Pizza DPZ, which has a short ratio of 19. This pizza delivery company last week reported a 68% increase in earnings and an 8.8% increase in international same-store sales as well as a 5% drop in domestic same-store sales. The stock has a P/E of 20, a PEG of 1.3 and a yield of 3.6%.

Domino's is held by Ritchie Capital, an Illinois-based global alternative asset management firm managed by Thane Ritchie. This company, which specializes in arbitrage and relative value strategies, also invests in Amkor Technology AMKR, which has a 4.8 short ratio, Western Digital WDC, which has a 3.6 short ratio, and Harris Corp. HRS, with a 2 short ratio.

The Cheesecake Factory CAKE has a 17 short ratio. The company, which owns over 130 Cheesecake Factory restaurants, just reported its first quarterly drop in profits in eight years. The stock has a P/E ratio of 22 and a 1.1 PEG ratio.

Robert Olstein, who manages the Olstein Financial Alert Fund, has taken a bite of Cheesecake Factory. The fund also owns shares of Macy's M, which has a short ratio of 2.5, Covidien COV, which has a 1.4 short ratio, and Morgan Stanley MS, which has a 1.4 short ratio.

For more heavily shorted stocks, check out the Top Restaurant Short-Squeeze Plays at Stockpickr.com.