Short Sellers Load Up on Best Buy and Sears (BBY, RAD, SHLD)

Overall, the short interest moves in troubled retail companies were mixed again during the final weeks of May. But Best Buy BBY, Rite Aid RAD and Sears Holdings SHLD saw especially large upswings in the period.

The number of shares sold short in Avon Products AVP, GameStop GME, Office Depot ODP and OfficeMax OMX also increased between the May 15 and May 31 settlement dates.

But the short interest in Barnes & Noble BKS, Bebe Stores BEBE, Bon-Ton Stores BONT, J.C. Penney JCP, Pacific Sunwear PSUN, RadioShack RSH and SuperValu SVU declined during that time.

Here is a quick look at how Best Buy, Rite Aid and Sears Holdings have fared and what analysts expect from them.

Best Buy

Short interest in this specialty retailer rose more than 19 percent to 25.04 million shares by the end of the month, erasing a similar retreat by short sellers in the previous period. The number of shares sold short represents more than nine percent of the float. Days to cover fell to about three.

Best Buy attributed the net loss for its first quarter to restructuring costs. The company has a market capitalization of about $9 billion and a dividend yield near 2.5 percent. The long-term EPS growth forecast is only about four percent. The forward earnings multiple is about 11.4.

The consensus recommendation of the 24 analysts who follow the stock that were surveyed by Thomson/First Call is to hold shares, and it has been for at least three months. The share price has overrun their mean price target, though the most optimistic individual price target suggests there is more than 25 percent potential upside.

The share price is up more than 133 percent since the beginning of the year, when shares were trading near a multiyear low. Over the past six months, the stock has outperformed competitors Amazon.com AMZN and Walmart WMT, as well as the broader markets.

Rite Aid

The number of shares sold short in this drugstore operator jumped more than 24 percent in late May to 42.18 million, or more than five percent of the company's total float. That was the highest level of short interest since mid-March. The days to cover slipped to less than three.

Rite Aid has more the 4,600 stores, and during the period it named a former Blue Shield of California CEO to its board. The retailer's market cap currently is less than $3 billion. Its long-term earnings per share (EPS) growth forecast is about eight percent, and its price-to-earnings (P/E) ratio is higher than the industry average.

Half of the eight analysts who were polled recommend buying shares, though none recommend selling them. The current share price is higher than the mean price target, indicating that the analysts on average see no upside potential at this time. But the street-high target is more than 10 percent higher than the share price.

Since the beginning of the year, shares have risen about 125 percent and reached a new multiyear high Friday. The stock has outperformed competitors CVS Caremark CVS, Walgreen WAG and Walmart, as well as the S&P 500, over the past six months.

Sears Holdings

The number of shares sold short in this once-venerable retailer rose almost 26 percent in the period to more than 9.64 million. That was the highest level of short interest in almost a year, and it came to more than 12 percent of the float. The days to cover dropped from more than 11 in the previous period to less than six.

This company operates more than 2,000 Sears and Kmart stores in the United States, and it reportedly is planning to convert some stores to data storage warehouses or disaster relief centers. The market cap is approximately $5 billion, but Sears does not offer a dividend. The operating margin and return on equity are in the red.

The consensus recommendation of the four analysts polled is to hold shares; none of them recommends buying shares. It is perhaps no surprise that the current share price has overrun the mean price target. The street-high target, though, suggest more than 12 percent possible upside.

The share price pulled back about 19 percent in late May, but it is now more than 13 percent higher year-to-date. The stock has underperformed Target TGT and the broader markets over the past six-months, but it did outperform Walmart during that time.