An update on recent IPOs and who's selling short - retail discount house initial public offerings

Discount Store News, April 20, 1992 by Neil Nordby

Selling Short: Two words you don't hear that much about at cocktail parties, but two words that can cause party-goers considerable indigestion. Short selling, in essence, is the opposite of buy low, sell high, as investors sell borrowed stock today with the hopes of buying back those borrowed shares at a lower price later.

Those stocks that are actively sold short have an artificial ceiling placed overhead which a stock often times cannot pierce en route to a higher price. Stocks that have large short interest ratios (i.e., the number of days a stock would have to trade its average daily volume to match the number of shares currently held short) are usually stocks to avoid in the short term.

Discount store stocks with large short interest ratios:

* Value Merchants: the company witnessed the number of shorted shares leap from zero on Feb. 15 to 1.12 million just one month later. With only 7.2 million total shares outstanding, that means nearly a whoping 16% of its shares are being bet on to fall lower in the near future. Last quarter, Value Merchants' stock price toppled $9 a share to $21.25.

* Value City Department Stores: the number of shares shorted at this retailer stood at 375,000 in mid-March, but with average daily trading volume of only 32,000, that means it would take nearly 12 days to cover that short position. Value City's performance last quarter: down $2 a share to $17.88.

* CUC International: 4.6 million shares shorted through mid-March, or just under 11% of its total shares outstanding. With average daily trading volume of 83,000, that translates to a whopping 56 days to cover that short position. The result last quarter: up a nominal 25 cents a share to $31.25.

Monitoring short interest is not a foolproof method nor a stand-alone concept, but it can alarm you to events not found in your quarterly brokerage statement. It also serves as a checkpoint to see if you need to do additional homework, call your broker, or better yet call the cfo of the company in which you're a shareholder.

New Issues: These are two words you hear at every cocktail party these days, as new issues, or initial public offerings (IPOs), have come out of the woodwork in droves. Here's a quick update on the first-quarter performances of recent IPOs:

* AutoZone sold 2.6 million shares at $23 via Goldman, Sachs in April 1991: up $3.31 a share last quarter to $36.88;

* Caldor sold 5.15 million shares at $21 via Kidder Peabody, also last April: down $2.50 to $15.50;

* Filene's Basement sold 4.8 million shares at $14.50 via Goldman, Sachs last April, and sold another 3.47 million in September 1991 for $22: down $2.88 to $27.13;

* ShopKo sold 16.5 million shares at $15 by Goldman, Sachs last October; up $2.88 to $15.75;

* Value City sold 3.75 million shares at $19.50 by Salomon Bros. last June: down $2 to $17.88;

* Goody's Family Clothing: sold 3.5 million shares last October via First Boston et al. for $15: up $5 a share to $31.50.

Questions can be directed to Neil Nordby, president of Nordby International at (303) 449-0326. Nordby International analyzes discount store stocks and provides bi-weekly stock charts for DSN.