What you will see below:
A sample of one of our short models.
This model seeks companies that are potentially “over-earning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
Margin over-earners are fertile hunting ground for shorts if the reasons for the margin increase are either unsustainable or fraudulent. In addition to margin sustainability, a critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts.
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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