Every day the financial regulator the Australian Securities and Investments Commission (ASIC) produces a short seller positions report that lets anyone interested see what percentage of a stock's total outstanding issue has been short sold.
For example, if 10% of a stock is sold short that means 1 in 10 shares on issue have been borrowed by speculators to sell in anticipation of the price falling further before they have to buy the shares back to return to the lender.
Short sellers tend to be professional investors who do their homework and therefore if a stock is heavily short sold (say more than 10% of its issue) it could be worth considering why this may be. Of course, short sellers can be very wrong as nobody knows the future, so their opinions should also be taken with a pinch of salt.
Still, let's take a look at 5 popular shares that have more than 10% of their shares on issue sold short as at November 22 according to ASIC.
BWX Limited (ASX: BWX) is the brand behind the Sukin chemical-free hair and beauty products. It recently lost its CEO and CFO before warning investors profit would come in lower than previously forecast for FY 2019. Its new profit forecast is also relying on a far stronger second half to the financial year over the six-month period ending June 30, 2019. It has 12.43% of its shares shorted.
Domino's Pizza Enterprises Ltd (ASX: DMP) is the pizza franchisor and store operator that is seeing its growth slowing as the franchise industry comes under the regulatory microscope in Australia. Traders are probably betting its valuation is too rich given the relatively subdued outlook in their eyes at least. It has 11% of its shares shorted.
Galaxy Resources Limited (ASX: GXY) has a large 15.8% of its shares shorted, which suggests some traders are confident this lithium miner is likely to run into problems. Galaxy has US$68 million cash in hand and no debt to fund its mining activities, but it seems that's not impressing the hedge funds.
IOOF Holdings Limited (ASX: IFL) has 10.5% of its shares shorted as the financial planning and retail wealth management business has the shadow of the Royal Commission hanging over it. It's also due to complete the $975 million acquisition of Australia and New Zealand Bank's (ASX: ANZ) OnePath financial planning arm in a deal that may be fuelling short sellers' concerns.
JB Hi-Fi Limited (ASX: JBH) has 19.8% of its shares short sold which is a lot given it's producing consistent profit and dividend growth. Short sellers are probably betting the electronic and white goods retailer is set to see its margins and market share erode due to competition from online overseas rivals.
