uploads///SI

Short Interest: Analyzing How It Impacts OFS Stocks

By

Updated

Tidewater

Tidewater’s (TDW) short interest-to-equity float ratio is 40.1%—the highest among the OFS (oilfield equipment and services) stocks that are part of the VanEck Vectors Oil Services ETF (OIH). In the past three months, Tidewater stock fell 76.9%, while its short interest-to-equity float ratio rose 64%. Its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 22.9x.

In the last four quarters, Tidewater’s revenue fell 40.7%. Its adjusted operating loss was $39.7 million in 4Q16—compared to $0.10 million in 4Q15. Its operating profit margin is -18.3%—compared to the industry median of -3.7%.

Article continues below advertisement

Diamond Offshore Drilling

Currently, Diamond Offshore Drilling’s (DO) short interest-to-equity float ratio is 37.1%. In the past three months, Diamond Offshore Drilling stock fell 24.2%, while its short interest-to-equity float ratio rose 20.3%. Its net debt-to-EBITDA ratio is 2.7x.

In the last four quarters, Diamond Offshore Drilling’s revenue fell 29.4%. Its adjusted operating income fell 30.2% in 4Q16—compared to 4Q15. Its operating profit margin is 21.1%.

Carbo Ceramics

Carbo Ceramics’ (CRR) short interest-to-equity float ratio is 29.1%. In the past three months, Carbo Ceramic’s stock rose 22.3%. Its short interest-to-equity float ratio rose 16.8% during the same period.

Carbo Ceramics is one of the high implied volatility OFS stocks that we looked at in Part 1 of this series. In the last four quarters, its revenue has fallen 48.8%. Its adjusted operating loss was $27.8 million in 4Q16—compared to an operating loss of $32.3 million in 4Q15. Its operating profit margin was -97.9%.

Article continues below advertisement

Seadrill

Seadrill’s (SDRL) short interest-to-equity float ratio is 28.5%. Its net debt-to-EBITDA ratio is 4.4x. Seadrill stock has fallen 62.6% in the last three months, while its short interest-to-equity float ratio has risen 19.1%.

We discussed Seadrill’s earnings trend in Part 2 of this series. In Part 1, we looked at its place among high implied volatility OFS stocks.

Noble

Noble’s (NE) short interest-to-equity float ratio is 26.8%. Its net debt-to-EBITDA ratio is 2.2x. In the past three months, Noble stock has fallen 11%, while its short interest-to-equity float ratio has risen 43.9%. Noble is another high implied volatility OFS stock that we looked at in Part 1 of this series.

In the last four quarters, Noble’s revenue has fallen 52.2%. Its adjusted operating income has fallen 86.3%. Its operating profit margin is 36.7%.

Stock prices, short interest, and implied volatility

High short interest in stocks such as Carbo Ceramics, Seadrill, and Noble could explain why they also have high implied volatilities. Traders pile on short positions when they expect a large fall in stocks. Large moves in stocks as well as expectations of large moves, particularly on the downside, can increase implied volatilities.

All of these high short interest OFS stocks saw their revenues fall over the last four quarters, which could be one of the reasons for their high short interest. A bigger concern is the higher short interest for all of these stocks over the last three months, despite the sharp fall that most of them experienced.

Advertisement

More From Market Realist