CCME: The Biggest Short Squeeze of 2011
By Glen Bradford
We are about to see the largest short squeeze of my lifetime. The current short position? Roughly $125M has been sold short on a company that is trading around $1B that analysts project to make $140M FY2011 that grew revenues over 100% last year.
Usually, shorts try to make money when stocks go down basing their short position on the company being overvalued. Unfortunately, when the underlying company is worth several multiples of where it is currently trading and adding to the short position only inspires and enables more buying, not less — you have the makings of an epic short squeeze. So, what are the shorts betting on? They are betting that CCME is a fraud.
Are they a fraud?
1. CCME has been fully vetted by Starr Int’l for 4 months (Starr Int’l headed by Hank Greenberg). Also on the board of directors and checks monthly numbers through Dorothy Dang.
2. CCME has been independently vetted by Global Hunter – 3 months.
3. CCME has a top 4 auditor Deloitte.
4. They are #1 on the Forbes China List of Small-to-Medium Sized Companies with the Greatest Potential 12/11/2011.
5. Their Zack’s Rank is #1.
6. Investors Business Daily gives them top marks, best marks out there actually.
7. Their CFO is a former auditor of PWC (Price Waterhouse Coopers).
a. Their CFO just bought $1.5M of stock.
8. Dividend policy starting in the next 90 days.
9. Signed contracts with Apple, Nike, Sony, Adidas, Toshiba, etc.
10. Independent investors have visited the company and not found indication of fraud.
11. Mike Koza, who has averaged 33% a year for almost 10 years, owns CCME.
12. Institutional holders include Goldman Sachs, Vanguard, and CALPERS
Is this a good deal?
1. Fully Diluted Market Capitalization of $1B.
2. Last year revenues grew over 100%.
3. Projected to make $140M FY2011.
4. Routinely conservative/beatable guidance.
What about the shorts?
1. The shorts are now naked shorting as evidenced by RegSho.
2. The quantity of shorts over the last 6 months has gone from around 1 Million to over 6 Million, an increase of 600%. Meanwhile, the stock has gone from around $10 to $20. So, I am assuming that on average they are underwater.
Technical Analysis?
1. Bullish TA: Cup and Handle
Lastly, I want to talk about how the mind of an investor works. When a stock trades in your direction, you feel good about it and don’t think much about it. When a stock trades against you, however, you tend to re-evaluate your investment hypothesis and consider changing your mind. My perspective is the following. If CCME goes to $25 and you have 6 million shares short that are all underwater — are the shorts going to short more when there are no more shares available to short or are shorts going to reconsider their investment hypothesis?
Disclosure: I’m long China Media Express. Wouldn’t you be if you felt this way?