The reporting season has given investors the opportunity to look under the bonnet of ASX-listed companies and short-sellers don’t like what they saw in a handful of shares.
This is despite a reasonably upbeat August reporting season with the majority of stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) either beating or meeting profit expectations.
But it always pays to know what short-sellers are betting against as this group tends to be more sophisticated than the average investor. Short sellers are those who borrow stock to sell on-market in the hope of buying it back cheaper later.
The stock that has seen the biggest increase in short-interest over the past month is novated leasing and auction group Eclipx Group Ltd (ASX: ECX) with the percentage of total shares on loan to short-sellers jumping 3 percentage points to 4.4%.
The sharp increase in bearish bets comes on the back of last month’s profit warning. It seems that Eclipx is the type of business that does better when the economy is in the doldrums with management blaming the lack of bank-driven insolvencies and the strong construction markets for a drop in equipment disposals to feed its GraysOnline auction division.
The fact that management has also spurred a takeover offer from SG Fleet Group Ltd (ASX: SGF) could also have emboldened the bears, although short-sellers may be playing a game of chicken here as there are rumours that McMillan Shakespeare Limited (ASX: MMS) could be running a ruler over the company.
The stock with the second-biggest increase in short-interest from last month is infant formula business Bellamy’s Australia Ltd (ASX: BAL), which saw a 2.9 percentage point jump to 4.7% of its shares being short-sold.
The big increase in shorts comes even after management posted a big swing to profit in FY18 and a 37% surge in revenue to $329 million.
However, the company has yet to secure approval from the Chinese government to sell its products directly into the lucrative Asian market, while its competitor A2 Milk Company Ltd (ASX: A2M) already has approval.
Bellamy’s FY19 outlook has also given short-sellers an excuse to target the stock with management warning investors not to expect the same pace of sales growth due to increased competition among Australian-labelled products.
The third company of note that is being increasingly targeted by short-sellers is engineering and construction group Monadelphous Group Limited (ASX: MND) with short-interest in the stock rising 2.5 percentage points to 5.7% after management forecasted lower construction revenue over the next 12 months despite a pickup in activity in the resources sector.
On the flipside, the stocks that saw the biggest drop in short-interest coming out of the reporting season include National Storage REIT Stapled Securities (ASX: NSR), Mayne Pharma Group Ltd (ASX: MYX) and Webjet Limited (ASX: WEB).
These stocks saw the amount of shares on loan to short-sellers drop by more than 4 percentage points each.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended National Storage REIT and Webjet Ltd. 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 Scott Phillips.