Are you a risk taker? Below, we list 10 companies that may seem to be great values but probably deserve a closer look.
To start with, the stocks on our list have seen an increase in shares shorted month-over-month. This rising interest from short-sellers is considered a bearish indicator -- after all, short-sellers benefit when stock prices fall.
Furthermore, the companys' balance sheets raise some flags. Although these companies saw growth in overall revenue, so did account receivables as a percentage of current assets.
Whenever accounts receivable takes up an increasingly larger portion of revenue, the quality of revenue is considered lower. This is because accounts receivable is an accrual (as opposed to cash), which is subject to management's discretion.
However, such increases in accounts receivable could be due to structural changes in the business, such as a new credit policy or an acquisition. There may be several explanations for these trends, but whenever accounts receivable growth exceeds revenue growth, it flags the investor to take a second look.
Here's a closer look at the terms used above:
Short-sellers: Short-selling is an investment technique that allows an investor to make money when the value of a stock falls. Short-sellers, however, lose money when the share price rises. Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short-selling. Thus, in general, short-sellers are more sophisticated than the average investor.
In general: When there is an INCREASE in short-selling, short-sellers think the stock will DROP in value. When there is a DECREASE in short-selling, short-sellers think the names will RISE in value
Receivables represent money earned but not yet collected, so when receivables become a larger part of the revenue reported by a company, it indicates lower-quality revenues. This is because there is no guarantee that the money will be paid back in full.
Assets: Any property or holding that has tangible value is listed as an asset. This can include cash, product inventory, accounts receivable, land, equipment, investments, and more.
There is no right or wrong proportion of current (short-term, liquid) assets and long-term assets. However, dwindling cash and current asset levels should be a concern -- it may be a sign of growing illiquidity, which can hamper or even paralyze a company.
Short-sellers don't seem to the trust the revenue quality of these names. Do you? (Click here to access free, interactive tools to analyze these ideas.)
1. RPC (NYSE: RES ) : Provides a range of oilfield services and equipment to the oil and gas companies primarily in the United States. Shares shorted have increased from 5.98M to 6.87M over the last month, an increase which represents about 1.77% of the company's float of 50.35M shares. Revenue grew by 75.18% during the most recent quarter ($443.03M vs. $252.9M y/y). Accounts receivable grew by 83.24% during the same time period ($400.95M vs. $218.81M y/y). Receivables, as a percentage of current assets, increased from 75.4% to 78.6% during the most recent quarter (comparing three months ending 2011-06-30 to 3 months ending 2010-06-30).
2. Amedisys (Nasdaq: AMED ) : Provides home health and hospice services including practical nursing services and physical and occupational therapy. Shares shorted have increased from 4.39M to 4.82M over the last month, an increase which represents about 1.5% of the company's float of 28.65M shares. Revenue grew by -11.51% during the most recent quarter ($373.72M vs. $422.35M y/y). Accounts receivable grew by 0.94% during the same time period ($153.27M vs. $151.85M y/y). Receivables, as a percentage of current assets, increased from 52.3% to 74.85% during the most recent quarter (comparing three months ending 2011-06-30 to 3 months ending 2010-06-30).
3. Mistras Group (NYSE: MG ) : Mistras Group, and its subsidiaries provide technology-enabled asset protection solutions to evaluate the structural integrity of critical energy, industrial, and public infrastructure worldwide. Shares shorted have increased from 668.08K to 827.02K over the last month, an increase which represents about 1.25% of the company's float of 12.73M shares. Revenue grew by 28.01% during the most recent quarter ($102.13M vs. $79.78M y/y). Accounts receivable grew by 42.6% during the same time period ($78.03M vs. $54.72M y/y). Receivables, as a percentage of current assets, increased from 61.98% to 73.08% during the most recent quarter (comparing three months ending 2011-05-31 to three months ending 2010-05-31).
4. Magnum Hunter Resources (NYSE: MHR ) : Engages in the acquisition, development, and production of oil and natural gas primarily in West Virginia, North Dakota, Texas, and Louisiana. Shares shorted have increased from 24.64M to 26.93M over the last month, an increase which represents about 2.09% of the company's float of 109.53M shares. Revenue grew by 298.1% during the most recent quarter ($33.44M vs. $8.4M y/y). Accounts receivable grew by 370.5% during the same time period ($33.17M vs. $7.05M y/y). Receivables, as a percentage of current assets, increased from 50.98% to 68.07% during the most recent quarter (comparing three months ending 2011-06-30 to three months ending 2010-06-30).
5. K12 (NYSE: LRN ) : Provides proprietary curriculum and educational services for online delivery to students in kindergarten through 12th grade (K12) primarily in the United States. Shares shorted have increased from 3.25M to 3.59M over the last month, an increase which represents about 1.29% of the company's float of 26.31M shares. Revenue grew by 34.83% during the most recent quarter ($130.29M vs. $96.63M y/y). Accounts receivable grew by 43.51% during the same time period ($134.05M vs. $93.41M y/y). Receivables, as a percentage of current assets, increased from 45.36% to 61.22% during the most recent quarter (comparing three months ending 2011-03-31 to three months ending 2010-03-31).
6. FX Energy (Nasdaq: FXEN ) : Engages in the exploration, appraisal, and production of oil and gas properties primarily in Poland and the United States. Shares shorted have increased from 4.42M to 5.20M over the last month, an increase which represents about 1.58% of the company's float of 49.38M shares. Revenue grew by 50.74% during the most recent quarter ($9.18M vs. $6.09M y/y). Accounts receivable grew by 561.07% during the same time period ($17.32M vs. $2.62M y/y). Receivables, as a percentage of current assets, increased from 25.97% to 55.46% during the most recent quarter (comparing three months ending 2011-06-30 to three months ending 2010-06-30).
7. Cimarex Energy (NYSE: XEC ) : Operates as an independent oil and gas exploration and production company primarily in Texas, Oklahoma, New Mexico, Kansas, and Wyoming. Shares shorted have increased from 2.45M to 3.29M over the last month, an increase which represents about 1.01% of the company's float of 83.41M shares. Revenue grew by 23.44% during the most recent quarter ($467.21M vs. $378.5M y/y). Accounts receivable grew by 34.71% during the same time period ($293.42M vs. $217.82M y/y). Receivables, as a percentage of current assets, increased from 41.29% to 52.99% during the most recent quarter (comparing three months ending 2011-06-30 to three months ending 2010-06-30).
8. Sonoco Products (NYSE: SON ) : Provides industrial and consumer packaging products, and packaging services in North and South America, Europe, Australia, and Asia. Shares shorted have increased from 2.04M to 3.29M over the last month, an increase which represents about 1.28% of the company's float of 97.53M shares. Revenue grew by 11.66% during the most recent quarter ($1,127.87M vs. $1,010.12M y/y). Accounts receivable grew by 19.1% during the same time period ($639.04M vs. $536.58M y/y). Receivables, as a percentage of current assets, increased from 48.87% to 51.31% during the most recent quarter (comparing three months ending 2011-07-03 to three months ending 2010-06-27).
9. KIT digital (Nasdaq: KITD ) : Provides cloud-based video management solutions for multi-screen delivery worldwide. Shares shorted have increased from 9.88M to 10.35M over the last month, an increase which represents about 1.27% of the company's float of 37.09M shares. Revenue grew by 109.07% during the most recent quarter ($48.19M vs. $23.05M y/y). Accounts receivable grew by 179.52% during the same time period ($62.92M vs. $22.51M y/y). Receivables, as a percentage of current assets, increased from 22.06% to 48.% during the most recent quarter (comparing three months ending 2011-06-30 to three months ending 2010-06-30).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Short data from Yahoo! Finance, accounting data from Google Finance.
Editor's note: A previous version of this article used the incorrect accounts receivable number for IPC The Hospitalist Company. We regret the error.
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