Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short-sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into profits.
We'll take a look at video-ringtone maker Vringo
|Market Cap||$202.1 million|
|1-Year Stock Return||157%|
|Dividend and Yield||N/A, N/A|
|Shares Short, Sept. 4||4.0 million|
|Shares Short, Aug. 15||2.8 million|
|CAPS Rating (out of 5)||**|
Sources: wsj.com, FinViz.com. TTM = trailing 12 months.
Just because the shorts are piling in doesn't mean you should, too. Such stocks could have serious problems that warrant their short interest, but they might also just be stricken by short-term troubles. Only Foolish due diligence will tell you for certain, and our 180,000-strong CAPS community offers a good place to start.
The short story
With a short interest coverage ratio of just a day, don't expect to see any short squeeze lifting Vringo's shares to lofty heights. Even though it amounts to nearly 9% of the video ringtone maker's shares outstanding, there won't be any pressure to bubble up the valuation. That's OK, because between the lawsuits it has against Google, Gannett
Vringo is suing Google and others for violating patents related to sorting ads based on click-throughs and recent Markman hearings upheld most of Vringo's claims, though that means little when it comes to trial. A Markman hearing just irons out interpretations of various patent claims before a trial begins, and some smart Fools believe it's not such a slam-dunk case. But AOL
The patents it got from Nokia for $22 million last month cover what the handset maker terms "essential" standards, and while Vringo is on the hook for payments still to Nokia depending on revenues received from them, it becomes another arrow in its quiver.
Which may be the reason Apple
Obviously there's just a lot of speculation, and perhaps short-sellers think it will all come to naught, and Vringo is subject to calls of being a patent troll. CAPS All-Star jwray01 looks askance at Vringo's new business model, saying its actual business is a money loser. Certainly litigation has become a way of life in the mobile market, but tell me in the comments section below if you think Vringo has a valid claim on the market or if it's just trolling for cash and can't sustain its current valuations.
Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?
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Editor's note: A previous version of this article had incorrect data in the table. The Fool regrets the error.
Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.