There’s some interesting stuff in the latest 10-K that Avid has filed. While some of these details are good for the short thesis, I still think that there are better shorts out there.
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writeups – shorts
Restoration Hardware Q2 2014 notes
I think that investors should pay attention to all of the costs being capitalized in the latest 10-Q.
Beating Wall Street in oil and gas
For whatever reason, it seems that many institutional investors analyze this sector poorly. This creates wonderful opportunities for short sellers. To recap, this sector has attractive shorts because:
- It seems that many institutional investors don’t understand how oil and gas companies inflate their reserves.
- Inflated reserves are very common among oil and gas companies.
- Institutional ownership is high enough that there are reasonable borrows on these stocks.
- Many management teams use the company as their piggy bank to pay for corporate jets, expensive meals, etc.
- Valuations are high.
- A few of these companies are pump and dumps.
Avid: Starting to burn through cash
On August 13, Avid issued a press release that provided a timeline for the release of its restated financial results. Comparing the figures with a past press release, it is possible to guestimate Avid’s cash burn.
- On Dec 31, 2014 Avid’s cash balance was $48M.
- On June 30, 2014 Avid’s cash balance was $23.0M with $5.0M of debt. So $18M after subtracting debt.
In the 2 quarters, Avid burned through $30M of cash. It may need to start drawing down its line of credit with Wells Fargo by the end of the year.
Short selling update July 2014
So far I have shorted the common shares of more than 80 stocks this year. On common shares, I have been profitable overall despite a rising market. Unfortunately, losses on put options (mainly YONG) have more than wiped out the gains on my common stock shorts.
I think that I’ve gotten fairly good at spotting bad stocks. My CAPS account is a reflection of that. (*CAPS does not consider the mechanics of borrowing shares. It’s unrealistic.) Unfortunately, I’ve been losing money on put options this year. Part of this may be because I mainly short small cap stocks which are too illiquid to buy put options on. As well, many of my shorts are volatile so the put options would be neither cheap or attractive.
See below for commentary on certain positions. Keep in mind that due to the sheer number of positions, my research on short positions is typically very shallow.
Silver Standard sells shares of Pretium in secondary offering
Here is Pretium’s press release. Silver Standard seems to be in a strong financing position given that the company has around $671M in current assets (versus $333M in total liabilities), a producing mine, and a book value of $837M. Instead of investing this capital in producing assets, the company is selling a mining asset (part of its stake in Pretium) for cash. In my opinion, Silver Standard is not making a mistake.
*Disclosure: I am short Pretium common shares and will be holding onto my position. I don’t follow Silver Standard and have no interest in it.
