Today's Short-Squeeze Plays: CONN

Concerns over the U.S. subprime crisis have weighed on investor sentiment, sending many high-quality stocks down and creating potential short-squeeze trading opportunities. The short-interest ratio (or simply the short ratio) is a measure of a stock's short position divided by the average daily volume. In other words, it is a measure of the number of days it would take short-sellers to cover their entire positions if the share price begins to appreciate.

A short squeeze is a phenomenon that takes place when the share price of a shorted stock appreciates, sending short-sellers scrambling to cover their bearish positions. When we're looking for potential short-squeeze plays, we look for companies that have a short ratio above 20, a P/E/G of less than 1.5 and a market cap over $250 million. (You can see the rest of the Top Short-Squeezes on Stockpickr.

One heavily shorted stock is Conn's (CONN Quote - Cramer on CONN - Stock Picks). The specialty retailer of home appliances and consumer electronics has a short ratio of 70.9, with 61.32% of the float shorted.

The company missed Wall Street expectations, both on reported earnings, as well as on guidance. Third-quarter earnings slid to $4 million, or 17 cents a share, from $7.2 million, or 30 cents a share, a year ago. The company has a price/earnings (P/E) of 13.33 and a P/E/G ratio of 1.03.

Conn's repurchased 542,100 shares of common stock for $12 million in the quarter ended Oct. 31. Under the current buyback plan, the company has repurchased a total of 1,041,185 shares for $24.5 million and will continue to buy back shares until it reaches the total authorization of $50 million.

Conn's has negligible debt, with a debt-equity ratio of 0.31, as of Oct. 31, as compared to rival Wal-Mart's (WMT Quote - Cramer on WMT - Stock Picks) 1.61. Morgan Keegan, which has a market perform rating on Conn's, reduced its earnings estimates in a recent note, citing the decline in the company's margins and rise in its inventory levels.

If Conn's has a good holiday season and reports better-than-expected numbers, a short-covering rally could take place.