Teavana Most Shorted Stock on the Market

Stock watcher Seeking Alpha posted a thoughtful assessment of Teavana Holdings, Inc. this week that praised the firm’s fundamentals and brought to light the contradictory fact that it is the most shorted stock on the market.

Investors who anticipate falling stock prices “short” stocks in an attempt to make money when share prices decline.

Frank Voisin, the commentator at Seeking Alpha, notes that Teavana with growth topping 36% and a market valuation of $839 million “is the most heavily shorted stock in America, with 76.6% short interest.”

Voisin asks why?

Aggregate sales are up but more importantly comparable store sales are up too. New store growth is robust and there is no sign of market oversaturation. Furthermore, these increased sales translated to increased profitability (in other words, the company isn’t sacrificing its margins in order to show top line growth). In fact, gross margins expanded over the period, meaning the company has been able to charge more on average for the same inputs as compared to its results prior to going public.

“By any objective measure, these results are fantastic,” he writes.

“On one hand, the company appears to be performing quite well by any reasonable standard and the future looks quite rosy as well, with high growth potential in a largely untapped market with growing demand. On the other hand, a number of market participants believe the company is headed for decline and are putting their money behind a short bet,” writes Voisin.

“So what gives?  Valuation.”

He argues the stock is overpriced and that “high expectations are a dangerous thing. As investors purchase at today’s high valuations, they are expressing their expectation that future performance will exceed that which is implied in the current price. Eventually, even strong performance will not be enough to satisfy these expectations.”

The barrier to entry is also low, and competiton from both brick and mortar and online ventures is prolific.

“In the end, the company will get hit on all sides, from new entrants both online and in physical form, and from existing retailers with their greater marketing budgets and already loyal customers. TEA has some first mover advantage, but that isn’t enough to meet the market’s implied expectations,” he writes.

Source: Seeking Alpha

COMMENT