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Hated stocks finally get some hugs

August 3, 2012: 12:18 PM ET

It's been a good week for heavily shorted stocks reporting earnings. I wrote (and did a video) Thursday about how Green Mountain Coffee Roasters (GMCR) surged despite poor guidance.

First Solar (FSLR) was another company that popped on earnings news even though there are still many economic headwinds in the U.S. and Europe facing the maker of solar panels. That made it Thursday's Stupid Stock Move of the Day.

On Friday, it was OpenTable (OPEN) that, uh, turned the table on short sellers.

OpenTable's results topped forecasts, pushing shares of the online reservation company up nearly 20%. But many traders are still skeptical about the company's prospects. OpenTable, like Green Mountain and First Solar, may be experiencing a bigger leap than it should due to earnings.

That's because investors who shorted the company may merely be rushing to buy the stock en masse in order to avoid a big loss. That's known as a short squeeze. Remember that even though short sellers are bearish about individual stocks, they still have to buy the stock back eventually to cover their position.

There's nothing to prevent short sellers from going after OpenTable again. And based on some of the comments from traders on StockTwits, that might very well happen.

PAAResearch: 5% YOY growth in diners seated/restaurant at $OPEN spells MATURITY

herbgreenberg: "@ActAccordingly: All the signs of maturation are here, $OPEN has held back OPEX for as long as possible. Underlying metrics are weak"

TMTanalyst: $OPEN is ripping - guess people are still eating out (for now)

People may still be eating out. But the sluggish economy does appear to be taking its toll. And if lower-priced dining options like Starbucks (SBUX) and Chipotle (CMG) are starting to report slower growth in the U.S., that may be bad news for higher-end restaurants that use OpenTable's services. Plus, OpenTable didn't necessarily have a "good" quarter. It just beat forecasts. Sales were up. But profits were down. That's a bad equation.

Now to be fair, even a stock that's almost universally loathed by investors deserves to go up on good news. And OpenTable, Green Mountain and First Solar did show some encouraging signs to satisfy the bulls.

Shorts aren't always right. Another big squeeze occurred with online jewelry retailer Blue Nile (NILE). It surged 35%, prompting me (thanks to some trusty Twitter followers) to make that Friday's Stupid Stock Move of the Day!

But the shorts often are on the money. And the sad case of RadioShack (RSH) last week is a clear example of that. "The Shack" is one of the most heavily shorted stocks on Wall Street. And the electronic retailer's shares continued to plunge last week after woeful earnings. And at the end of the day, stocks that are shorted could be very volatile because investors aren't sure what the right price should really be as shorts and longs wage war.

@CreateCapital$OPEN is up 20% because nobody knows what its worth

Good point. But we do the stock is now valued at 25 times 2012 earnings forecasts. That's a lot lower than where it used to trade. But it may still be too much for a maturing business that may face increased competition from the likes of social reviews site Yelp (YELP) and Google (GOOG)-owned Zagat.

Reader Comment of the Week goes out to a college buddy of mine. I tweeted earlier this week about the upcoming IPO of Manchester United. My friend reminded me that the Man U owners also own a down on its luck football team in West Central Florida.

Too funny, Josh. And by the way, remind me to NOT take Josh Freeman and Mike Williams in our fantasy football draft this year!

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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