Simpson Manufacturing (NYSE: SSD) makes wood and masonry building products for residential and commercial construction. In May, it had the largest short interest ratio of any stock traded on The New York Stock Exchange.

It would take 37 days of trading at the company's average daily volume to wipe out the short interest of 8.5 million shares. That makes for quite a head wind. (To learn more, read Short Interest: What It Tells Us.)

Stock Price OK
Simpson's share price is doing well for a company with so many shares short, perhaps too well. The stock trades at around $33 on a 52-week high/low of $37.99/$24.93. One of the reasons that outsiders may have confidence in the company is that the chairman owns nearly one-quarter of the shares. The company also recently completed a stock repurchase and issued its quarterly dividend, despite poor earnings. Both are signs that the board is doing what it can to keep investors in the stock.

Poor Earnings
Simpson cannot avoid the fact that its fortunes are tied to the construction business, and this may be why the shorts like the stock. Recent earnings from Toll Brothers (NYSE: TOL), Home Depot (NYSE: HD) and Lowe's (NYSE: LOW) are certainly indications that the housing sector is still in trouble.

For the first quarter of 2007, Simpson's numbers were poor. Revenue fell from $215.7 million in the quarter a year ago to $193.2 million. Income from operations fell from $40.2 million to $26.6 million.

Share Price Defies Gravity
So far this year, Simpson shares have outperformed home-builders Toll Brothers, Hovnanian (NYSE: HOV) and Home Depot. The company's board has clearly been aided by the large amount of insider holdings and efforts like buying in shares. But, the short selling community is in a tug-of-war, assuming that Simpson will eventually be subject to the same market forces as the other companies in its industry.

If the shorts are right, Simpson shares have a long way to fall.

If you have an interest in short selling, see Short Selling Tutorial and When To Short A Stock.

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Tickers in this Article: SSD, TOL, HOV, LOW, HD

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