The following five stocks are being targeted by short sellers, with short floats above 15%. Notably, these companies also have operating cash flow growth that is trailing behind their net income growth – a possible sign of earnings deterioration...
When net income grows faster than operating cash flow, it is a sign that accruals (as opposed to cash) is becoming a larger part of earnings. This can be due to innocuous reasons such as changes in credit policy, or it can be symptomatic of larger problems.
Do you trust these names to follow through with their accruals? Use this list as a starting-off point for your own analysis...
Net income and operating cash flow sourced from Google Finance, short float and performance data sourced from Finviz, recent developments sourced from Reuters.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
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List sorted by difference between net income growth and operating cash flow growth.
1. Ebix Inc. (EBIX): Business Software & Services Industry. Market cap of $856.28M.
Net Income grew by 76.88% ($16.7M vs. $9.4M y/y), while Operating Cash Flow grew by 33.27% ($13.9M vs. $10.4M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).
Short float at 21.7%, which implies a short ratio of 15.57 days. The stock has gained 50.21% over the last year.
Recent developments: Announced completing acquisition of A.D.A.M. Inc. (Feb. 2011).
2. Rackspace Hosting, Inc (RAX): Internet Software & Services Industry. Market cap of $4.75B.
Net Income grew by 49.78% ($13.5M vs. $9.0M y/y), while Operating Cash Flow grew by 23.53% ($56.9M vs. $46.1M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).
Short float at 18.04%, which implies a short ratio of 10.17 days. The stock has gained 87.39% over the last year.
Recent developments: CFO Knooihuizen announced his intention to retire (Feb. 2011).
3. Westar Energy, Inc. (WR): Diversified Utilities Industry. Market cap of $2.89B.
Net Income grew by 41.41% ($114.7M vs. $81.1M y/y), while Operating Cash Flow grew by 22.05% ($227.7M vs. $186.6M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).
Short float at 16%, which implies a short ratio of 22.4 days. The stock has gained 27.66% over the last year.
Recent developments: Issued FY11 earnings guidance in line with analysts’ estimates (Feb. 2011).
4. Dillard's Inc. (DDS): Department Stores Industry. Market cap of $2.61B.
Net Income grew by 37.84% ($109.6M vs. $79.5M y/y), while Operating Cash Flow grew by 24.11% ($179.6M vs. $144.7M y/y) (comparing 13 weeks ending 2011-01-29 vs. 13 weeks ending 2010-01-30).
Short float at 19.56%, which implies a short ratio of 6.17 days. The stock has gained 150.21% over the last year.
Recent developments: Announced share repurchase program of $250M of common stock (Feb. 2011).
5. P.F. Chang's China Bistro, Inc. (PFCB): Restaurants Industry. Market cap of $1.07B.
Net Income grew by 21.93% ($14.7M vs. $12.0M y/y), while Operating Cash Flow grew by 9.87% ($34.3M vs. $31.2M y/y) (comparing 13 weeks ending 2011-01-02 vs. 13 weeks ending 2010-01-03).
Short float at 25.99%, which implies a short ratio of 12.86 days. The stock has gained 12.19% over the last year.
Recent developments: Issued FY11 guidance in line with analysts’ estimates (Feb. 2011). Announced Co-CEO Vivian’s intention to retire (Dec. 2010).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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