Short interest on Restaurant Brands International jumps tremendously in first half of September

You might not be familiar with the name Restaurant Brands International (NYSE: QSR), but you probably know the names of the restaurants it operates. The brands include Tim Hortons, Burger King, and Popeyes. Restaurant Brands operates over 4,800 Tim Hortons, 17,800 Burger Kings, and 3,100 Popeyes in approximately 100 countries around the world.

The company got my attention for a couple of reasons recently and both of them point to a possible rally in the stock. First, I received a bullish signal on Restaurant Brands on September 30 as the daily stochastic readings made a bullish crossover. Secondly, I noticed that the short interest on the stock jumped sharply in the first half of September.

Let’s look at the chart first. We see on the daily chart that the stock was trending higher after gapping up in January. There were a few dips along the way, but the pullback in the past month has been the most severe. The selling brought the 10-day RSI down close to oversold territory before it turned a little higher and the stochastic readings reached oversold territory before making the aforementioned bullish crossover.

I found the trend line to be particularly interesting as it touched the pre-gap high from January as well as the low in March. The low at the end of May/beginning of June also touches the trend line and now this recent dip hits it yet again.

The Tickeron Price Growth Rating for Restaurant Brands is 23 and that indicates outstanding price growth. The stock price has grown at a higher rate over the last 12 months than S&P 500 index constituents. A rating of 1 points to highest price growth (largest percent return) while a rating of 100 points to lowest price growth (smallest percent return).

Turning our attention to the short interest on Restaurant Brands, the number of shares sold short jumped from 6.6 million at the end of August to 22.96 million on September 13. That is one of the biggest jumps in short interest I have ever seen and I have been watching short interest changes for almost 20 years now. The jump caused the short interest ratio to jump to 10.1 and that is extremely high. The average short interest ratio is in the range of 3.0.

From a contrarian perspective, the big jump in short interest and the high short interest ratio are both good signs. For the stock to maintain its upward trend while so much selling pressure has been applied is incredible. Secondly, if the stock resumes its upward trend, the short sellers may have to close their positions and that can add tremendous buying pressure to the stock.

As for the fundamentals for Restaurant Brands, the Tickeron SMR rating is 25, 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 Tickeron PE Growth Rating for the stock is 29 and that indicates outstanding 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.

The company has seen earnings grow by an average of 27% per year over the last three years while sales have increased by an average of 12% per year over that same time period. In addition, the company boasts a return on equity of 64.8% and a profit margin of 28.3%. Both of those readings are outstanding.