Divisive, Volatile Zillow Tests its Upper Limits

Jacob Harper  |

When it comes to battlegorund stocks, real estate website Zillow (Z) is unique in its unsually high amount of discord, probably because the company sits on the focal point of not one, not two, but three points of major economic disagreement.

Zillow is a growth stock, which as everyone knows are all due for an immediate massive correction. Or possibly not, as the solar sector’s recent uptick has suggested.

Zillow is also a facilitator of home sales – and as Jeffrey Gundlach and others have pointed out, that market is set to tank at any time. Or maybe housing just beginning to ramp up, as Bill Miller is certain will happen.

But perhaps it’s all a moot point, because as Citron Research “proved” in 2012, Zillow is a fraud whose valuation is largely fantasy. Or that’s just the story of a short-seller looking to make a buck by maligning an honest company, a company that’s nearly always been dogged by naysayers merely interested in cashing out their own short positions.

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Point: Zillow Bulls!

As the summer nears, it appears that Zillow has put those naysayers to bed. The company set successive highs on the week, closing out above $110 for the first time ever on May 19, and then north of $116 a share on May 22. Investors have clamored back into the stock after a sell-off before the May 7 earnings report, which ended up being largely successful, providing evidence that Zillow is indeed for real.

But Zillow being Zillow, it’s not ever that clear. Befitting a battleground stock, Zillow is volatile as the day is long. So far, that volatility has edged upwards. But a great balancing force appears to be on the horizon.

Point: Zillow Bears!

Zillow carries a whopping 36.38 percent short float, up from the 29.28 percent the disruptive company carried just two months prior.

To be sure, we’re talking tech sector here, so their fundamentals are sometimes regarded by traders as mere window dressing. But as previously overvalued tech plays like LinkedIn (LNKD) can attest, eventually reality catches up with valuations, and a forward P/E north of 130 often cannot be sustained for too long before the market comes to correct.

Short sellers are clearly enamored with Zillow, and insiders are selling (and only own 1.4 percent of the stock,) giving credence to assertions that the company is due to break downwards any time now. But then again, shorters have doubted Zillow for a long time now, and as they notch another big trading day, they’re proving the doubters wrong – and making them poorer to boot.  

After touching an all time high of $116.61 around noon, shares of Zillow edged down, settling in at the end of the day at $114.32 a share, for a 4.84 percent gain. Zillow is up 32.89 percent on the year.


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