A great deal of short interest in a stock usually isn't a good sign (natch). Shorts aren't always right, but they're usually pretty smart when it comes to ganging up on richly valued stocks (according to Yahoo, ELON's PE is 100) with high aspirations.
I have been shown zero facts to prove that shorts are usually right or do more research. I've heard this many times before, but I've heard many things and usually the quiet facts totally disprove what the consensus thinking is. There are a ton of people short TTWO because some guy from the thestreet.com wrote a article about them. The stock has gone from 15 to 25. This company has a top selling video game and is very undervalued compared to their peers. BUt the shorts were just convinced the stock was headed towards 7.
Look at Rambus. That was like 50% of the float. A mutual fund manager said he was telling everyone he knew to short Rambus. You can agree or disagree on whether Rambus was been a success from a business point of view, but the company is still around and doing more in sales today than in 1999. Umm..the shorts were wrong. Now that the market has crashed, I think more dumb people have become short sellers. Chrysler is another. Everyone said they were going bankrupt. Not only did Chrysler continue to operate, but they went on to producing one of the more popular cars in the 80s. The reason shorts can be wrong like everyone else is because there is a strong tendency for humans to group in herds. They feel safety when everyone else agrees with their opinion. Whether you are a short or a long, you are human and deal with the same psychological factors as everyone else. If you want to disagree, be my guest.
Shorts are humans. The question is, do you have more faith in your abilities or in other humans that you have never met? At least I know my strengths and weaknesses. Regardless of the shorts, if your facts and reasoning is right, you'll ultimately be proved correct. Matter of fact, I want to own stock in a company I believe in with a high short interest. If I know they are wrong, the shorts will cover and I will make a huge proft. Investing in something that the consuesnus agrees with (ala JDSU in 2000 or QCOM the past two years) will not produce good returns IMO.
As for Echelon. The estimate for 2003 is $.67 which would give you a PE of around 22. That isn't bad. Tell me, how many shiny pebbles are reasonable valued on sound valuation metrics (i'm assuming the estimates are correct)? I don't think Echelon is about home automation, although that's part of the business. I think automating factories, or buildings is a market that could use Echelon's technology. I just don't understand the ROI for the consumer market. Why do I want to turn my lights on and off from my computer or cell phone? Not something the market wants right now or would pay for IMO. Ten years from now and that could be different. All too often on Wall Street, people develop models based on history. The problem is, people fall into the trap of thinking that the future will be like the past. And how likely is that? So why do humans continue to make the same mistakes. You guessed it, our stupid animal psychological instincts. We always assume things can't happen to us. It happens to other people. Psychology is what drives markets. Markets never change, because people never do. Gorillas are still companies and valuation will always matter. Now that many people are giving up on tech, we may actually be able to buy reasonable stocks. Matter of fact, I'm quite happy with this bear market and hope it continues. For example, if Qualcomm were to announce that VodaFone will adopt CDMA2000, I doubt the stock would even budge. In the past, Qualcomm would have shot up 50 points. Now the stock would probably do nothing. That's value to me. Makes investing much easier as well. Of course, I happen to think that a major European carrier switching from WCDMA to CDMA2000 as possibility the biggest news in Qualcomm history next to the Ericsson court win. |
