By now, most investors would be aware of the increased level of short selling on the Australian share market and the impact this can have on share prices.

When short sellers get it right, they can potentially change sentiment towards a specific stock or even an entire sector. When they get it wrong, however, they can be ‘squeezed’ out of their positions and this can result in share prices rising aggressively.

While some investors may choose to ignore the activity of short sellers, it can often be useful to understand why a particular stock is being targeted as this can provide valuable information for investors.

Four shares that have been in the sights of of short sellers include:

InvoCare Limited (ASX: IVC)

More than 7.1% of Invocare’s shares are currently short sold which would be surprising for some investors considering it is generally viewed as a defensive and fairly predictable company. It appears the short interest is coming from sellers who believe the company’s expansion into the US market may be more difficult than first thought. InvoCare’s profit results have already been dragged down by bigger-than-expected loss-making operations in the US and it is unclear when operations will become profitable. The shares are also trading on a price-to-earnings ratio of around 26 which means investors may begin to lose patience if earnings growth doesn’t pick up soon.

Bellamy’s Australia Ltd (ASX: BAL)

Short interest in Bellamy’s has more than doubled since the start of April and is now around 8.2% of issued shares. This is quite a high level of short interest considering the infant food maker was one of the market darlings in 2015 and is still producing explosive sales growth. Some investors, however, are not convinced the current level of growth is sustainable due to a combination of regulatory risk from China and fears of increasing competition. The shares have already fallen 35% since hitting a high of $16.50, but it’s clear that the short sellers still believe the shares are overvalued considering some of the risks facing Bellamy’s.

Flight Centre Travel Group Ltd (ASX: FLT)

Short positions in Flight Centre have remained consistently high over the past 12 months on the expectation of another earnings downgrade. Domestic demand has been subdued and although the company is performing well in other markets, the domestic market is still, by far, the biggest contributor to overall earnings. Weaker consumer sentiment and the upcoming Federal election are just two factors the travel agent is faced with and, over the last week, the shares have come under significant selling pressure as investors question whether or not it will be able to meet its FY16 guidance. Flight Centre is the fourth most shorted stock on the ASX with around 11.5% of shares currently short sold.

Slater & Gordon Limited (ASX: SGH)

Although short positions in the law firm have fallen from their peak of 17.5% in October 2015, they still sit at around 7% which is surprising considering the shares have already fallen 87% since then. Obviously, some sellers believe there is still a good chance of further downside for Slater & Gordon shares despite the fact the company successfully renegotiated a plan to extend its debt repayments by a further 12 months. The company is still in a very precarious financial position and it is unlikely short interest will be dissipating anytime soon.

Investors should forget about Slater and Gordon and consider these three dividend stocks instead!

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.