9 Short Covered Stocks Undervalued By EPS Trends

We created a screen for companies with significant decreases in shares shorted month over month. This signals optimism, or rather a lack of pessimism, from short sellers – a group of investors who benefit when share price falls. We then looked for those that appear undervalued relative to EPS trends. [More lists:  Hodges Loves These 10 Blue Chips for Dividends and Long-Term Growth]

Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred. We screened for those exhibiting this mismatch between changes in EPS estimate and price.

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Short sellers seem to think these stocks have upside to price in, an opinion supported by EPS trends. Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List Average 1-Year Return: 27%. Compare returns with this interactive chart. Click through to access more free tools. 

1. Chicago Bridge & Iron Company N.V. ( CBI): Provides engineering, procurement, and construction (EPC) solutions, as well as process technologies for the energy infrastructure projects. Market cap at $6.01B, most recent closing price at $57.02.  

Shares shorted have decreased from 5.85M to 3.50M over the last month, a decrease which represents about 2.39% of the company's float of 98.35M shares. Days to cover ratio at 1.89 days. The EPS estimate for the company's current year increased from 3.51 to 4 over the last 30 days, an increase of 13.96%. This increase came during a time when the stock price changed by 7.65% (from 52.97 to 57.02 over the last 30 days). 

2. DeVry, Inc. ( DV): Provides educational services worldwide. Market cap at $1.91B, most recent closing price at $30.16.  

Shares shorted have decreased from 7.17M to 6.52M over the last month, a decrease which represents about 1.15% of the company's float of 56.53M shares. Days to cover ratio at 6.35 days. The EPS estimate for the company's current year increased from 2.15 to 2.67 over the last 30 days, an increase of 24.19%. This increase came during a time when the stock price changed by -0.82% (from 30.41 to 30.16 over the last 30 days). 

3. KB Home ( KBH): Operates as a homebuilding and financial services company in the United States. Market cap at $1.69B, most recent closing price at $20.18.  

Shares shorted have decreased from 18.47M to 17.61M over the last month, a decrease which represents about 1.31% of the company's float of 65.84M shares. Days to cover ratio at 3.67 days. The EPS estimate for the company's current year increased from 0.1 to 0.12 over the last 30 days, an increase of 20.%. This increase came during a time when the stock price changed by 9.61% (from 18.41 to 20.18 over the last 30 days). 

4. Netflix, Inc. ( NFLX): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $10.34B, most recent closing price at $184.70.  

Shares shorted have decreased from 9.72M to 8.07M over the last month, a decrease which represents about 3.36% of the company's float of 49.18M shares. Days to cover ratio at 1.53 days. The EPS estimate for the company's current year increased from 1.13 to 1.29 over the last 30 days, an increase of 14.16%. This increase came during a time when the stock price changed by 1.5% (from 181.962 to 184.7 over the last 30 days). 

5. Sturm, Ruger & Co. Inc. ( RGR): Engages in the design, manufacture, and sale of firearms in the United States. Market cap at $1.09B, most recent closing price at $56.45.  

Shares shorted have decreased from 6.82M to 5.99M over the last month, a decrease which represents about 4.46% of the company's float of 18.63M shares. Days to cover ratio at 8.75 days. The EPS estimate for the company's current year increased from 3.48 to 3.7 over the last 30 days, an increase of 6.32%. This increase came during a time when the stock price changed by 2.86% (from 54.88 to 56.45 over the last 30 days). 

6. Sanderson Farms, Inc. ( SAFM): Engages in the production, processing, marketing, and distribution of fresh, frozen, processed, and prepared chicken products. Market cap at $1.24B, most recent closing price at $53.75.  

Shares shorted have decreased from 1.89M to 1.48M over the last month, a decrease which represents about 2.02% of the company's float of 20.27M shares. Days to cover ratio at 5.54 days. The EPS estimate for the company's current year increased from 2.52 to 2.86 over the last 30 days, an increase of 13.49%. This increase came during a time when the stock price changed by 4.84% (from 51.27 to 53.75 over the last 30 days). 

7. Smith & Wesson Holding Corporation ( SWHC): Offers metal processing services and manufactures firearms and handcuffs as well as apparel and sportsmen's articles. Market cap at $626.84M, most recent closing price at $9.77.  

Shares shorted have decreased from 15.56M to 14.58M over the last month, a decrease which represents about 1.51% of the company's float of 64.87M shares. Days to cover ratio at 3.15 days. The EPS estimate for the company's current year increased from 1.04 to 1.2 over the last 30 days, an increase of 15.38%. This increase came during a time when the stock price changed by 6.78% (from 9.15 to 9.77 over the last 30 days). 

8. TAL International Group, Inc. ( TAL): Engages in the lease of intermodal containers and chassis. Market cap at $1.46B, most recent closing price at $43.04.  

Shares shorted have decreased from 3.57M to 3.23M over the last month, a decrease which represents about 1.04% of the company's float of 32.63M shares. Days to cover ratio at 8.52 days. The EPS estimate for the company's current year increased from 4.1 to 4.51 over the last 30 days, an increase of 10.%. This increase came during a time when the stock price changed by 0.07% (from 43.01 to 43.04 over the last 30 days). 

9. Take-Two Interactive Software Inc. ( TTWO): Develops, and distributes interactive entertainment software, hardware, and accessories worldwide. Market cap at $1.41B, most recent closing price at $15.42.  

Shares shorted have decreased from 18.42M to 17.12M over the last month, a decrease which represents about 2.13% of the company's float of 61.02M shares. Days to cover ratio at 8.09 days. The EPS estimate for the company's current year increased from 0.17 to 0.18 over the last 30 days, an increase of 5.88%. This increase came during a time when the stock price changed by 4.19% (from 14.8 to 15.42 over the last 30 days). 

 

List compiled by Kapitall Editor Rebecca Lipman

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