Small cap NASDAQ stocks Vera Bradley, Inc (NASDAQ: VRA), Ebix Inc (NASDAQ: EBIX) and Synta Pharmaceuticals Corp. (NASDAQ: SNTA) had the highest short interest as of late September according to HighShortInterest.com with short interest of 57.46%, 52.28% and 47.09%, respectively. However, shorting a stock can be a dangerous business as the bears can and do sometimes get mauled by the bulls. With that in mind, let's take a look at why the bulls or the bears may be right or wrong about these three shorted small cap stocks:
Vera Bradley, Inc. A leading designer, producer, marketer and retailer of stylish and highly-functional accessories for women, small cap Vera Bradley's products include a wide offering of handbags, accessories and travel and leisure items. Around the middle of September, Vera Bradley sank after earnings and after giving a disappointing earnings guidance. Specifically, Vera Bradley reported that net revenues increased 1.9% to $125.4 million and net income of $15.0 million verses $13.4 million (but net income for the last twenty-six weeks fell 7.2% to $24.1 million) but what really caused the stock to tank was a guidance of between $128 million to $130 million in revenue (below forecasts for about $147 million) and a profit of 30 cents to 35 cents (below forecasts for a 48-cent profit). Right now, Vera Bradley has a trailing P/E of 12.87 and a forward P/E of 13.11 – meaning its looking undervalued. Moreover and if Vera Bradley can beat its guidance, things could get bearish for the shorts; but with that said and for investors, there are probably better bets out there in the retail space. On Monday, Vera Bradley rose 1.48% to $21.24 (VRA has a 52 week trading range of $17.27 to $31.00 a share) for a market cap of $862.41 million plus the stock is down 13.7% since the start of the year, down 16.6% over the past year and down 21% since October 2010.
Ebix Inc. A leading international supplier of software and e-commerce solutions to the insurance industry, small cap Ebix Inc provides a series of application software products for the insurance industry ranging from carrier systems, agency systems and exchanges to custom software development for all entities involved in the insurance and financial industries. In late September, optionMONSTER reported that 2,800 October 9 puts were sold with put sellers looking for Ebix Inc to stay above $9 through expiration in mid-October. However and what really got the bears clawing at Ebix Inc were August reports that the Feds were investigating the company's cross-border financial transactions to see if its involved in money laundering (according to unnamed sources). Ebix Inc was quick to respond with a press release outlining its side of the story and it should also be noted that there was a June disclosure by the company that the U.S. Attorney's Office in Atlanta had begun an investigation into "allegations of intentional misconduct." Moreover, Ebix Inc was supposed to be acquired by an affiliate of Goldman Sachs for $20 a share in a $820 million, but that deal went off the table with the disclosure. Given the uncertainty surrounding Ebix Inc and the allegations against it, most bulls and bears will probably want to sit on the sidelines here. On Monday, Ebix Inc fell 2.12% to $10.63 (EBIX has a 52 week trading range of $8.21 to $24.35 a share) for a market cap of $403.58 million plus the stock is down 32.7% since the start of the year, down 55.4% over the past year and up 5.1% over the past five years.
Synta Pharmaceuticals Corp. A biopharmaceutical company, small cap Synta Pharmaceuticals Corp is focused on discovering, developing, and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases. In mid-September, Synta Pharmaceuticals Corp announced that the FDA has granted Fast Track designation to the investigation of ganetespib, the company's lead Hsp90 inhibitor drug candidate, for the treatment of patients with metastatic non-small cell lung adenocarcinoma. Otherwise and back in July, Synta Pharmaceuticals Corp surged some 41% after a small trial of ganetespib in breast cancer met goals warranted expansion of the study (Note: The drug is being tested in lung and other cancers). However and The Street's noted in Synta Suffers From Premature Stock Promotion Syndrome, the phase II study of ganetespib was designed to enroll 70 breast cancer patients but the company announced "preliminary" results from just 15 patients. In other words, the bears are betting that Synta Pharmaceuticals Corp has jumped the gun. On Monday, Synta Pharmaceuticals Corp fell 0.92% to $6.43 (SNTA has a 52 week trading range of $3.76 to $11.88 a share) for a market cap of $444.05 million plus the stock is down 27.7% since the start of the year, down 32.6% over the past year and down 7.3% over the past five years.
Finally, here is a look at the long term performance of all three small cap stocks:
As you can see from the above chart, long term investors in Ebix Inc are up but just barely while investors in Vera Bradley and Synta Pharmaceuticals Corp are below breakeven. Moreover, the technical charts for Vera Bradley and Ebix Inc ars still looking bearish while the chart for Synta Pharmaceuticals Corp might be turning against the bears.
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