I guess it’s pretty clear the shorts were not paying much attention to ongoing developments at Palm in the last month or so.Â Going into December there were about 38 million shares short out of a float of about 110 million.
When Palm got a fresh injection from Elevation Partners that started the ball rolling and their stellar display of new technology and strategy at CES yesterday, especially in the absence of other interesting news from the Steve-less Macworld and humdrum CES.
Most fundamental analysis would say the stock is a little ahead of itself right now at $6.50 but the volume so far suggests there are still lots of shares sold short.Â Our long-term analysis suggests an intrinsic value of $11 based on a successful execution of the turnaround.Â So despite all the near-term momentum there isn’t a strong enough reason to sell shares at these prices, at least not yet.
Shorts will certainly point to there still be "lots for Palm to prove" and the next couple of quarters are going to be ugly based on reported results.Â However if investors are willing to "look through" the negative short-term data points the shorts may not get the relief they are hoping for.
We agree that there are still plenty of risks for Palm and have included more detail in our published note scheduled for release on Monday.