This report went out to clients last week.
Suspicious Overearners: This model seeks companies that are potentially “over-earning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
This week we feature overearning short candidates: Dick’s (DKS), Nucor (NUE), Atkore (ATKR), HCA Hlth (HCA), Danaher (DHR), and Calif Water Svc (CWT).
Margin over-earners are fertile hunting ground for shorts if the reasons for the margin increase are either unsustainable or fraudulent. In addition to margin sustainability, a critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts.
These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.
Click here for the report.
Peek into our short idea generation process.
September 14, 2021
