Short-sellers certainly huffed and puffed with all of their might in May, but it wasn't meant to be: The tech-heavy Nasdaq Composite (NASDAQINDEX:^IXIC) rose another 3.8%, extending its year-to-date gains to an impressive 14.5%. A slow but steady economic recovery in the U.S., fueled by an accommodating Federal Reserve, has certainly set the stage for the bulls to keep running down Wall Street.

However, not all investors see it this way. In fact, quite a few skeptics have been building positions squarely against some the Nasdaq's most active companies. As we've done for the past two months, I propose we again examine the Nasdaq's five most short-sold companies, figure out why investors have bet so decisively against them, and see whether there's any merit to their bearishness.


Short Interest as a % of Shares Outstanding

Affymax (OTC:AFFY)


Coinstar (NASDAQ:OUTR)


Questcor Pharmaceuticals



GT Advanced Technologies



Bio-Reference Laboratories


Source: S&P Capital IQ.

Why are investors shorting Affymax?

  • Affymax short interest surged last month from 42% to 49% as the reality set in of the company's voluntary recall of its only FDA-approved drug, Omontys, in February. Omontys, a drug used to treat anemia, caused severe adverse events in 0.2% of patients, including anaphylaxis. A total of three patients died from the injection. No definitive timetable has been given by Affymax as to how it will address the problems with Omontys.

Is this short interest deserved?

  • Absolutely! It's quite possible that Omontys may never make it back to market, and that's quite scary, as it currently makes up Affymax's entire pipeline (Affymax had two additional clinical studies ongoing that used Omontys as the combination therapy). Even if Omontys manages to make it back to market, it could be with a nasty warning label that cripples its sales potential. I believe the short-sellers have this one properly pegged.

Why are investors shorting Coinstar?

  • Coinstar's short interest actually fell month over month by roughly 270 basis points as Wall Street analysts continue to wage a war of words over the future of the company and its RedBox DVD rental business. Research firm B. Riley, for instance, upped its price target to $100 from $80 while Pacific Crest forecast that Coinstar could lose all of its Redbox free cash flow by 2016 as people make the transition away from DVD-rentals to digital streaming.

Is this short interest deserved?

  • I would certainly say that a high level of skepticism is warranted, given Coinstar's reliance on DVD rentals to drive cash flow. A streaming partnership with Verizon could help allay some of those fears over time, but the only answer right now for Coinstar is to saturate the market with RedBox kiosks in order to maintain its current revenue levels. That doesn't strike me as a winning combination over the long run when everything is moving toward a convenient digital platform.

Questcor Pharmaceuticals
Why are investors shorting Questcor Pharmaceuticals?

  • As with Coinstar, short-sellers took a bit of a breather from betting against Questcor after the share price shot up rapidly at one point last month. Although Questcor's first-quarter results left much to be desired from an EPS perspective, sales of its primary drug, Acthar Gel, reached a record in April, boding well for future growth. Still, an ongoing U.S. probe of Questcor's marketing practices continues to weigh on optimists.

Is this short interest deserved?

  • Although my pessimism has been tested by April's Acthar Gel figures, and there's little denying that Questcor has found quite a niche with 19 FDA-approved indications for Acthar Gel, I still have concerns about this ongoing marketing-practices probe. It could result in nothing more than corrective action by Questcor. Then again, it could hang around for months and lead to hefty fines. That still remains enough of an impetus to simply avoid Questcor altogether.

GT Advanced Technologies
Why are investors shorting GT Advanced Technologies?

  • GT Advanced Technologies, a provider of solar-panel equipment to help increase efficiency, had quite the month -- as did many solar manufacturers. The thesis behind the big move in May is that costs are now low enough to encourage businesses and governments to spend on solar upgrades. GT Advanced Technologies will especially benefit from the sale of Chinese solar panels, because, as my Foolish colleague Travis Hoium has pointed out, Chinese companies are spending very little on research and development at the moment.

Is this short interest deserved?

  • In spite of the high short interest on GT Advanced Technologies, this isn't a company I'm very concerned about. Though it could see a slowdown in orders if a big Chinese solar panel producer folds under a mountain of debt, there are more than enough solar makers in China to step up and fill the supply void. GT Advanced Technologies has a good shot at succeeding in many emerging markets and is a company I'd actually suggest digging a bit deeper into.

Bio-Reference Laboratories
Why are investors shorting Bio-Reference Laboratories?

  • Finally, diagnostic lab services company Bio-Reference Laboratories saw its short interest rise by less than 1% from last month despite the fact that its share price soared 21% during May. At the heart of its problems is a lawsuit from a former employee who alleges improper billing practices. In addition to this gray cloud there are ongoing billing concerns for the company's molecular diagnostic services, which aren't always reimbursed by insurance companies.

Is this short interest deserved?

  • Like last month, it's tough to tell where Bio-Reference Labs may head next. The need for molecular diagnostics and personalized medicine is certainly there and is being reflected in the steady double-digit sales growth rates. However, the questions surrounding Bio-Reference's billing practices and whether or not insurance companies will continue to reimburse the company's services cast enough doubt to keep me firmly planted on the sidelines.

Do you feel the Nasdaq's five most hated companies have been given a bad rap? Share your thoughts in the comments section below.