My first idea for an earnings short squeeze play is Sina (SINA_), which is scheduled to report its results on Tuesday after the market close. This company provides online media and mobile value-added services in the People's Republic of China. This stock is off to a strong start in 2011 with shares up around 17%. Wall Street analysts are expecting the company to to report revenue in a range of $103.90 million to $105.18 million and earnings per shares of 37 cents to 49 cents.
This company is what I like to call the Chinese play on social networking. Sina owns and operates a popular social networking microblogging Web site called Weibo. The site is often referred to as a hybrid of Twitter and Facebook and is reported to have well over 50 million users. Some Wall Street analysts have expressed concerns that China could start to clamp down on Twitter-like communication services due to some recent demonstrations in the Far East.
That might very well happen in the future, but the stock has already started to discount some of that news, with shares recently trading off from $95 a share to its recent low of $75 a share. My take here is that the bears have probably started to short the stock more aggressively off of this potential crackdown on Internet communications in China. That strategy might be setting up to backfire though since I believe the current quarter should be a strong one driven by the rapid growth with Weibo. In fact, I think the current quarter could produce an earnings blowout for the bulls.
The current short interest as a percentage of the float for SINA sits at around 10.7%. That means that out of the 61 million shares that are available for trading, 5.95 million shares are currently sold short by the bears as of Feb. 15. The shorts have also increased their bets by around 2% from the last reporting period. This sets the stock up nicely for a short squeeze since the tradable float is extremely low.
From a technical standpoint, I would like to see SINA trending higher into its earnings report, and it would be ideal for the stock to stay above its 50-day moving average of $80.88 a share. As long as the stock doesn't sell off hard before the earnings report on volume above the three-month average trading volume of 2.2 million shares, then I think we have a good chance for a large earnings short squeeze.
