Is this stock set to be a short-selling favourite in the near term?

Listed fund manager Platinum Asset Management Limited (ASX: PTM) may be the laggard of the sector but the stock looks set to fall further in the near-term according to at least one broker.

This could make the stock popular among short sellers who are looking to make a quick profit by selling borrowed stock in the hope of buying it back at a lower price down the track.

As it stands, Platinum Asset isn’t quite on short sellers’ radar as yet with around 3% of its shares on issued short sold, according to the latest ASIC data. It’s an increase of 1.2 percentage points over the month, but it doesn’t come close to current short-sold favourites like department store operator Myer Holdings Ltd (ASX: MYR) and telecom services company Vocus Group Ltd (ASX: VOC), which have close to 16% of their shares short-sold each.

This means there’s plenty of room to short-sell Platinum Asset if one chooses and Morgan Stanley is tipping further falls for the stock as it thinks consensus forecast is underestimating the fund outflows – a key drive for the share price.

The broker estimates that May was the third month in the second half of FY17 where outflows have been around $500 million. Further, the broker thinks it will take longer than originally anticipated for a recovery in outflows. Outflows are the withdrawal of funds by investors in the fund.

The stock isn’t yet cheap enough to attract bargain hunters either even though it has fallen close to 12% this calendar year when its peers such as Magellan Financial Group Ltd (ASX: MFG) and BT Investment Management Ltd (ASX: BTT) have jumped 17.4% and 11.8%, respectively.

The drop still leaves Platinum Asset trading on a lofty P/E of around 18X based on Morgan Stanley’s FY18 forecasts and the broker believes there is a 60% to 70% chance that the stock will underperform over the next 60 days.

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Motley Fool contributor Brendon Lau owns shares of BT Investment Management Limited and Vocus Communications Limited. The Motley Fool Australia owns shares of Platinum Investment Management Limited and Vocus Communications Limited. 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.

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