4 Stocks With High Short Interest That Could Rise

NEW YORK (TheStreet) -- Shares of companies that investors are betting will fall, such as coupon seller Groupon (GRPN) and online travel-deals company Travelzoo (TZOO), may get a pop if they exceed analysts' expectations for earnings in the first quarter.

A so-called short squeeze, in which investors betting on stock-price declines buy back the shares if they rise, is a common occurrence with companies with a high short-to-cover ratio. Skullcandy ( SKUL), a maker of headphones and other audio accessories, has a short-to-cover ratio of 28.1. That ratio indicates how many days, based on average daily volume, it would take all of the shorts to cover their shares and buy them back.

Company earnings have slowed, and analysts expect an increase of only 0.9% for the benchmark S&P 500, according to Sam Stovall, chief equity strategist at S&P Capital IQ. That heightens the probability of short squeezes, as investors grow more pessimistic on equities, in particular those they think will fare worse than their peers.

There are several scenarios for a short squeeze, including seasonality, but with earnings season upon us, strong earnings and solid guidance could lead these four companies higher.

Groupon

Groupon has been one of the most controversial names since going public in November 2011.

As of the end of March, 23.3 million shares were held short. The stock has a 11.5 short-to-cover ratio, according to Nasdaq.com.

Plagued by accounting issues since going public, shares have lost 52% of their value since they started trading, and 39% this year. Groupon recently restated fourth-quarter earnings, citing higher-priced deals. The company's auditor, Ernst & Young said it found "material weaknesses" in its internal controls.

The Chicago-based daily deals company did reiterate its first-quarter guidance, expecting between $510 million and $550 million in revenue, and income from operations of $15 million to $35 million.

Stifel Nicolaus analyst Jordan Rohan notes that third-party data suggests that January was a mediocre month for Groupon, but February was very strong. "Travel deals were one of the key factors driving a strong billings month in February," Rohan wrote in his report. He rates Groupon shares "sell."

Groupon is set to report earnings on May 14. Analysts polled by Thomson Reuters are looking for earnings of 1 cent per share on $530.82 million in revenue.

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Skullcandy

Skullcandy, which makes headphones and other audio accessories, is another embattled name with a high-short interest. Despite this, shares have jumped since the start of 2012, gaining 39%.

According to Nasdaq.com, 8.8 million shares were held short as of the end of March, the last data available. Skullcandy has a 28.1 short-to-cover ratio, an exceptionally high number.

The company recently had its CFO and General Counsel Mitch Edwards resign, but Piper Jaffray analyst Jeffrey Klinefelter does not see this as a major event. "New packaging has begun to arrive in stores which is the first of several actions that we anticipate successfully elevating the brand during 2012," Klinefelter wrote in a March research report. He rates Skullcandy "overweight" with a $26 price target.

Skullcandy is set to report earnings on May 2. Analysts polled by Thomson Reuters are looking for earnings of 4 cents per share on $44.29 million in revenue.

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Travelzoo

Like the aforementioned Groupon, Travelzoo competes in the online daily-deals space, with most of its focus on travel and entertainment deals.

Shorts have had their eyes set on this space, primarily due to low barrier to entry, which is reflected in the stock price. Shares reached as high as $101 in April 2011, but are now trading around $26. Shares are up 8.7% this year.

According to Nasdaq.com, 3.5 million shares were held short as of the end of March, for a short-to-cover ratio of 8.5. Nearly 20% of the 15.96 million shares outstanding are held short.

Also leading further credence to a potential short squeeze is the company has supposedly put itself up for sale, according to reports.

Travelzoo is scheduled to report earnings on April 19. Analysts polled by Thomson Reuters are looking for earnings of 41 cents per share on $42.20 million in revenue.

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OpenTable

As competitors like Yelp ( YELP) and Google's ( GOOG) Zagat gain more traction, enthusiasm for OpenTable has faded, along with its stock price. Over the past 12 months, shares have fallen 61%.

Shares are up 4.6% since the start of 2012, but could see further gains if a short-squeeze plays out ahead of earnings.

Barclays analyst Mark May wrote in a recent research report that restaurant adds in March were "particularly strong, and as such, we believe that N.A. restaurants adds likely trended in-line with our 1Q12 forecast (this is consistent with our mid-quarter update on 3/9/12)." Despite this, May wrote that he sees limited upside to his first quarter 2012 estimates, but believes the company's core fundamentals are largely intact. He rates OpenTable "overweight" with a $55 price target.

According to Nasdaq.com, 8.76 million shares were held short as of the end of March, for a short-to-cover ratio of 9.1.

Travelzoo is scheduled to report earnings on May 1. Analysts polled by Thomson Reuters are looking for earnings of 34 cents per share on $39.58 million in revenue.

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Interested in more on OpenTable? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 4 Stocks With High Short Interest That Could Rise portfolio on Stockpickr.

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-- Written by Chris Ciaccia in New York

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