Today's Short-Squeeze Plays: SRDX
By Jason Raznick
RealMoney.com Contributor
12/26/2007 2:49 PM EST
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Concerns over the state of the economy 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.
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A short squeeze takes place when the share price of a shorted stock appreciates, sending short-sellers scrambling to cover their bearish positions. If there is some unexpected good news, a heavily shorted stock may surge, resulting in good returns.
When I'm looking for potential short-squeeze plays, I look for certain situations. Today, I looked at companies in the health care sector that had a short ratio above 15 and a market cap over $300 million. (You can see the rest of the Top Short-Squeezes on Stockpickr.)
One highly shorted stock is SurModics (SRDX - commentary - Cramer's Take - Rating), with a short ratio of 30.9 and 31.78% of its float shorted. The developer of drug-delivery technologies for the health care industry announced a $35 million share-repurchase program in November. It also announced the completion of its prior buyback program, under which it repurchased about one million shares at an average price of $34.76 per share.
Additionally, SRDX not only beat Wall Street expectations but also reported record revenue for the fiscal fourth quarter. Revenue rose 21% to $21.3 million. EPS was also ahead at 47 cents. Some other factors that weigh in favour of the stock are the company's P/E ratio of 287.55 and a P/E/G ratio of 1.5. Also, insiders own a large part of the company.
The stock is owned by the Winslow Green Growth Fund, which recently increased its stake in the company. This fund also owns Fuel Tech (FTK - commentary - Cramer's Take - Rating), which has a short ratio of 9.3, Whole Foods Market (WFMI - commentary - Cramer's Take - Rating), with a short ratio of 4.5, and First Solar (FSLR - commentary - Cramer's Take), with a short ratio of 1.5.
SRDX has a diverse portfolio, which is good during economic uncertainties. It recently acquired BioFX Laboratories for $22.7 million to broaden its product base and has signed a record number of licensing deals this year. With the board and smart funds buying shares, the company issuing a bullish earnings reports and the high short-ratio, it may be a good idea to add this stock to your portfolio, which I would do if the shares dip below $53.
AI
