In today’s briefing:
- Weekly Overearning Short Candidates: Albemarle, Builders FirstSource, Mueller Indus., Carlisle Cos.
Weekly Overearning Short Candidates: Albemarle, Builders FirstSource, Mueller Indus., Carlisle Cos.
- This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
- The reasons for the margin increases are sometimes unsustainable or fraudulent. The critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation.
- These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.
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