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ESL: Insiders vs. Shorts

By Market News Video Staff, Tuesday, March 13, 2:21 PM ET
Play Video: What Short Interest Means

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The most recent short interest data was recently released for the 02/28/2018 settlement date, and Esterline Technologies Corp (NYSE:ESL) is one of the most shorted stocks of the Russell 3000, based on 5.16 "days to cover" versus the median component at 4.17. There are a number of ways to look at short data, but one metric that we find particularly useful is the "days to cover" because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then divided by the average daily volume, to express the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

In the case of Esterline Technologies Corp (NYSE:ESL), the total short interest at the 02/28/2018 settlement date was 867,494 shares, which compares to the average daily trading volume of just 168,238 shares, for a "days to cover" ratio of 5.16.

When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. At the present levels of short interest, if from this point forward every single ESL share traded represented a short position being closed, then at the average daily volume of 168,238 shares it would only be during the 6th trading day that every short position would be closed.

So it would stand to reason that should some unexpectedly good news come out, and short sellers did not have 6 days of patience but instead wanted to cover their short positions very suddenly, that situation could result in sending the stock higher until the higher price produces enough sellers to generate the necessary volume to close out those positions quickly.

Esterline Technologies Corp (NYSE:ESL) has something relatively rare for a stock with this much short interest, that being insiders taking the other side of the trade. Looking back over the trailing six month period, ESL has seen 5 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
11/14/2017 Nils Larsen Director 1,450 $70.51 $102,239.50
11/14/2017 Michael J. Covey Director 1,000 $69.95 $69,950.00
11/14/2017 Curtis C. Reusser Chairman, President & CEO 2,900 $70.00 $203,000.00
12/05/2017 Mary L. Howell Director 2,858 $70.79 $202,317.82
12/05/2017 Nils Larsen Director 1,450 $70.10 $101,645.00
12/14/2017 Delores M. Etter Director 1,000 $72.13 $72,130.00

Below is a chart showing the "days to cover" for ESL over time:

And looking at the chart below, ESL's low point in its 52 week range is $67.15 per share, with $102.70 as the 52 week high point that compares with a last trade of $76.00.

Esterline Technologies Corp Moving Averages Chart

In recent trading, shares of Esterline Technologies Corp (NYSE:ESL) were changing hands at $76.00/share.

This Article's Word Cloud:   Corp   Director   Esterline   Larsen   NYSE   Nils   Technologies   average   because   being   below   buying   chart   close   closed   compares   cover   daily   data   date   days   every   fillColor   higher   interest   most   must   number   over   period   point   position   positions   recent   represented   sellers   settlement   share   shares   short   stock   that   their   then   total   traded   trading   volume   with   would
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