Lattice Semiconductor: Strong Fundamentals, a High Short Interest Ratio, and a Buy Signal
Stocks with high short interest or high short interest ratios have been all over the news this week, thanks to the insane rallies from Gamestop (GME) and AMC Networks (AMCX). The crazy jumps in those two stocks have caused additional interest in almost all stocks with high short interest ratios. A number of stocks have rallied more than 20% simply because they have higher short interest than many stocks.
We have been using the short interest ratio as a contrarian indicator for over 20 years and know the power of a short squeeze. The difference between Gamestop and AMC Networks, and the stocks that we like are the fundamentals. Both of those companies have terrible fundamentals and rallying for one reason and only one reason.
For us, if you can find a stock with strong fundamentals that is in upward trend and has a high short interest ratio, now you have a high probability trade. That is exactly what you have in Lattice Semiconductor (LSCC).
Before we get to Lattice’s short interest info and the fundamentals, let’s look at what the short interest ratio is and why it matters. First, the short interest ratio is simply the number of shares sold short divided by the average daily trading volume. For instance, if there are 5 million shares sold short and the average daily trading volume if 1 million, the short interest ratio is 5.0.
The reason the ratio can be a useful trading tool is because it can cause rallies to accelerate greatly. Let’s look at an example. If a stock is trading at $50 and there are short sellers that have bet on the stock going down to $40 or $37.50 for a quick 20% to 25% gain, to close their short positions the short sellers have to buy the stock. If the stock goes up instead of going down, the short sellers may have a stop set at $55 or $60. If a stock is already rallying and now you have short sellers adding additional buying pressure, the rally can accelerate greatly.
With that being said, the Nasdaq website shows 5,283,152 shares of Lattice sold short as of December 31. The average daily trading volume is 589,498 and that gives us a short interest ratio of 8.96. If the stock rallies and the short sellers are forced to cover, it will take almost nine days of average trading volume for them to cover their positions.
High Confidence Level Bullish Signal Generated on Lattice Semiconductor
In addition to those factors, the Tickeron Trend Prediction tool just generated a bullish signal for Lattice Semiconductor on January 26. The trend prediction tool is an AI-based mechanism that looks at a number of different fundamental and technical indicators and looks at trade setups to what we are seeing currently. It then calculates whether the stock is likely to go up or down and with a level of certainty assigned.
The buy signal shows a confidence level of 90% and by using the previous 100 instances with similar stats, the probability of the stock moving higher over the next month is at 90%.
Part of the positive outlook for Lattice comes from the company scoring very well in one fundamental indicator and scoring above average in another one. The Tickeron Profit vs. Risk Rating for Lattice is 4 with the best score being a 1, and the worst score being a 100. This suggests that being long the stock presents low risk with the possibility of high returns. The average Profit vs. Risk Rating for the semiconductor industry is 47, placing the stock well above average.
Lattice also scores well in the Tickeron SMR rating. The reading for the company is 38, again the best score is 1 and the worst is 100. The SMR rating measures sales growth, income margin, and return on equity. A low score indicates strong sales and a profitable business model. Looking in to the components that make up the SMR rating, Lattice does extremely well with the ROE at 27.8% and the income margin at 20.6%.
Trending Higher with a Short-Term Pullback
Looking at the weekly chart for Lattice Semiconductor we see a trend line connecting the lows from March and September. That trend line is sitting just above $35 currently and it could provide support as the stock has fallen over the last four weeks.
The stock was tremendously overbought when it peaked in early January, at least based on the 14-week RSI. The indicator has since fallen and is at its lowest level since last April when the stock was just starting to recover from its first-quarter pullback. The indicator hasn’t been in oversold territory at any point in the last three years.
Earnings on the Horizon
Lattice is set to report fourth quarter earnings results on February 16. The current consensus estimate is for EPS of $0.17 and that matches the results the company saw in the fourth quarter of 2019. The company has beaten EPS estimates in each of the last seven quarters, so there is a history of the company issuing better than expected results.
Revenue is expected to come in at $103.02 million and that is up 2.8% from the same period last year. Revenue is predicted to grow by 8.1% in 2021 and earnings are expected to grow by 13.4%.
This is where the high short interest ratio can come in to play. Should the company beat expectations again, and should it beat on the revenue estimates as well, we could see the stock rally and the high short interest ratio could cause the rally to accelerate. A boost to the outlook could also cause the stock to reverse from its recent pullback.
The combination of solid fundamentals, a high short interest ratio, and a bullish signal suggests that Lattice should move higher in the coming months.
LSCC in downward trend: price dove below 50-day moving average on April 12, 2024
LSCC moved below its 50-day moving average on April 12, 2024 date and that indicates a change from an upward trend to a downward trend. In of 45 similar past instances, the stock price decreased further within the following month. The odds of a continued downward trend are .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on April 17, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on LSCC as a result. In of 83 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The 10-day moving average for LSCC crossed bearishly below the 50-day moving average on April 17, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 17 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where LSCC declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
The Aroon Indicator for LSCC entered a downward trend on April 12, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
Bullish Trend Analysis
The Stochastic Oscillator demonstrated that the ticker has stayed in the oversold zone for 1 day, which means it's wise to expect a price bounce in the near future.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where LSCC advanced for three days, in of 324 cases, the price rose further within the following month. The odds of a continued upward trend are .
LSCC may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
Fundamental Analysis (Ratings)
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating low risk on high returns. The average Profit vs. Risk Rating rating for the industry is 62, placing this stock better than average.
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating steady price growth. LSCC’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is significantly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: LSCC's P/B Ratio (13.947) is slightly higher than the industry average of (6.420). P/E Ratio (37.957) is within average values for comparable stocks, (115.554). LSCC's Projected Growth (PEG Ratio) (0.000) is slightly lower than the industry average of (2.540). LSCC has a moderately low Dividend Yield (0.000) as compared to the industry average of (0.021). P/S Ratio (13.316) is also within normal values, averaging (34.446).
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
a developer of high-speed programmable logic devices
Industry Semiconductors