If the value of your shares ever drops significantly for no reason, it might be worth wandering over to the Australian Securities and Investment Commission (ASIC) website and checking out their latest 'Daily Short Interest' report.
'Short interest' refers to investors who expect the price of a share to fall, borrow shares to sell them, and aim to buy them back at a lower price thus pocketing the difference. Shares with a potentially unsustainably high price, loads of negative publicity, bad financials, or perceived to be facing insurmountable structural challenges often come under heavy short-selling interest. Even successful companies are not immune:
(All data taken from ASIC's most recent Daily Short Positions Report from the 3 Feb 2016)
Carsales.Com Ltd (ASX: CAR) – 7.8% of issued shares held for short selling
Carsales attracts short interest from sellers who believe its high multiple of around 26 times earnings is unsustainable. Indeed shares fell heavily after its annual report last August, when the market was disappointed with revenue growth of 32% and Net Profit After Tax growth of 8%.
Given the recent rise in Carsales' share price, the company could be vulnerable to a sell-off this week if investors again find its results not to their liking. Long-term investors however, should have faith in the company's prospects and see any price falls as a bargain.
Greencross Limited (ASX: GXL) – 12.8% of issued shares held for short sell
Short positions in Greencross have actually decreased since 4 January 2016, as it seems short sellers were betting that Greencross management would reject TPG's buyout offer – which is what happened. Short interest remains high in the lead-up to the report however, possibly in anticipation of a poor or underwhelming result.
Certainly I have an eye on the upcoming report myself, to check if Greencross is able to continue its same-store sales growth as well as make progress towards self-funding its expansion. It's uncertain where Greencross' share price will head in the near future, with results due out next week and potential buyers waiting in the wings. However investors should be aware of the potential for further sharp falls.
Flight Centre Travel Group Ltd (ASX: FLT) – 12.9% of issued shares held for short sell
Flight Centre attracts a lot of short interest from investors who fear that its bricks-and-mortar business model is gradually being eroded by online booking websites. Indeed, when a market update last year revealed that Flight Centre had lost market share to competitors, the sell-off was savage, with shares falling to $30 at one stage.
Short interest remains high in the lead-up to the company's half-yearly update, possibly expecting further erosion of market share. Flight Centre recently invested in its online capabilities with a 70% buyout of BYOjet Group, an online travel agency. While short-selling may hurt the share price in the near term, it overlooks the company's long-term international potential.
While Flight Centre, Greencross and Carsales show that even successful companies can catch the eye of short sellers, struggling companies may be even less fortunate. Short interest in Myer Ltd (ASX: MYR), Metcash Limited (ASX: MTS), and Monadelphous Group Limited (ASX: MND) stands at a staggering 17%+ each.
Perhaps more than anything, the lesson here is to focus on the business, and not its share price.
