Fundamental Short Selling Research

Eric Fernandez, CFA

TwoRiversAnalytics

Equity Bottom-Up

Solvency Risk Model:  This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short-term maturities for additional input. Solvency shorts can be great short candidates.  The key characteristic is that the company may not be viable, economically, given their cash flows and capital structures.  These shorts tend to have moderate to higher betas, time horizons that depend on their particular situations, and can have strong down moves as the crisis is recognized.  They can also go bankrupt, pushing the stock price close to zero. See below (and attached) for discussion on featured stocks and the top stocks at risk.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/511/original/image_19810368031633964798828.png?1633964799" class="editor-image img-responsive" data-smartkarma-image-id="234511"></figure>

Solvency Risk Model:  This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short-term maturities for additional input. Solvency shorts can be great short candidates.  The key characteristic is that the company may not be viable, economically, given their cash flows and capital structures.  These shorts tend to have moderate to higher betas, time horizons that depend on their particular situations, and can have strong down moves as the crisis is recognized.  They can also go bankrupt, pushing the stock price close to zero. See below (and attached) for discussion on featured stocks and the top stocks at risk.

Two River's Solvency Risk Short Candidates: Sabre Corp, PBF Enrgy, BellRing Brnds, PowerSchool Hldgs