Perhaps the thing most characteristic of the meme stock craze of 2021 was the large short positions in stocks like AMC, GameStop and BlackBerry. A focused assault by hordes of retail investors squeezed the shorts, who were then forced to run for cover. Short covering drove the price of these stocks even higher.
Could it happen again? Never say never, but the equity market is far different today than it was a year ago. Then, there were piles of cheap (even free) money available. That is no longer the case. Inflation was running at around 2%, and Bitcoin traded at around $60,000. Those were the days.
Even with equity prices currently tanking, however, short sellers continue to behave as if some stocks still have a long way to fall. Will a heavily shorted stock that pays a dividend be able to attract enough investors to evade a collapse in its price?
We screened U.S. equities for dividend-paying stocks with more than 20% of the floated shares sold short. We found only a dozen, and only five of them had dividend yields of more than 4%. Nine of the dozen are consumer discretionary stocks, and the top five were all retail stocks of one kind or another. That should be no big surprise, given that the first things most consumers give up when times get tough are things they can get along without.
American Eagle Outfitters
Specialty retailer American Eagle Outfitters Inc. (NYSE: AEO) is expected to report first-quarter fiscal 2023 results later this month. The consensus analyst outlook is not groovy. Revenue is forecast to be 24% lower sequentially, while earnings per share (EPS) are expected to be 25% lower than in the January quarter. Year over year, revenue is projected to improve by 11.7%, while EPS are forecast to drop by 45.8%.
As of Wednesday’s close, Fintel reported that 26.5% of the company’s floated shares are short, a year-to-date high. At its current trading price, AEO stock’s implied gain is nearly 110%.
The company pays an annual dividend of $0.72, yielding 5.33%. The company’s payout ratio is 27.15%, and its free cash flow for the past 12 months was $69.8 million ($0.41 per share). The average daily trading volume on the stock is around 6.2 million shares.
Big Five Sporting Goods
In mid-November of last year, shares of Big Five Sporting Goods Corp. (NASDAQ: BGFV) surged to an all-time high. Since then, the stock has dropped more than 68%. According to the latest short interest data from Fintel, 41.7% of the company’s floated stock is sold short.
When the company reported March-quarter results earlier this month, EPS came in about 10% higher than the consensus estimate and revenue slightly below the estimate. The bad news is that Big Five issued second-quarter EPS guidance of $0.40 to $0.50, lower than the estimate of $0.79 from the single analyst covering the stock (Buy rating, $23 price target). Second-quarter same-store sales are forecast to see a high-teens percentage decrease, following a record second quarter in 2021.
The stock’s 52-week trading range is $12.93 to $47.65. The low was posted on Wednesday. Big Five pays an annual dividend of $1.00, for a yield of 7.68% and a payout ratio of 71.75%. The average daily trading volume is less than 1 million shares. Free cash flow for the past year was $37.8 million, or $1.72 per share.
Camping World
After reaching a 52-week low in late April, shares of recreational vehicle retailer Camping World Holdings Inc. (NYSE: CWH) added more than 21% before the company reported earnings on May 3. An EPS miss sent the shares tumbling by 10%. Over the past 12 months, the shares have lost about 36%. As of Wednesday’s close, Fintel reported that just over 46% of the company’s floated shares are short.
Recognizing that investors were unlikely to be impressed, the company raised its annual dividend by 25%. The big question for Camping World is whether sales will continue to improve if consumers start holding onto their cash. Full-year sales are expected to increase by less than 1%, and an EPS decline of about 26.5% in anticipated.
Free cash flow was negative $279.3 million over the past four quarters ($6.70 per share), and the dividend hike is not going to fix that. The stock’s 52-week range is $24.58 to $46.77. Camping World’s annual dividend is $2.50, for a yield of 6.01% and a payout ratio 23.2%. The average daily trading volume is around 1.7 million shares.
Guess
Another specialty retailer, Guess? Inc. (NYSE: GES), is expected to report first-quarter 2023 results early in June. Year-over-year comparisons suggest higher revenue and EPS. Sequential comparisons are not as encouraging, mainly because the fourth quarter that ended in January reflected holiday season business. For the full 2023 fiscal year, Guess is expected to add about 3% to revenue and almost 7% to EPS.
At Wednesday’s closing bell, 23.35% of the company’s float was sold short, somewhat lower than the year-to-date high of about 25.1% at the end of March.
Guess pays an annual dividend of $0.90, yielding 4.58%. The company’s payout ratio is 21.44%, and free cash flow for the past 12 months was $68.1 million ($1.09 per share). The average daily trading volume on the stock is around 1.1 million shares.
24/7 Wall St.PetMed Express
Online pet pharmacy PetMed Express Inc. (NASDAQ: PETS) got a big sales boost from the stay-at-home rules during the pandemic. Like many companies in a variety of industries, PetMed had trouble meeting expectations given the tough comparisons. The company’s sales for the 2022 fiscal year that ended in March were down about 11.6%, and EPS fell by 31.5%. Short interest in PetMed is just over 22%.
PetMed stock has dropped about 25% over the past 12 months, and since reaching a 52-week in early June, shares have declined by around 53%. The stock reached a 52-week low on Tuesday.
PetMed pays an annual dividend of $1.20 yielding 5.73%. The company’s payout ratio is 114.56%, and its free cash flow for the past 12 months was $16.7 million ($0.83 per share). The average daily trading volume on the stock is around 400,000 shares.
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