Each day the corporate regulator ASIC publishes a list of the percentage of shares on issue short sold for every company within the S&P/ ASX200 (ASX: XJO).
If a company has more than say 5% or 10% of its shares sold short that suggests a fair few professional analysts are confident the shares will fall.
Short sellers borrow stock off a prime broker (usually part of the asset servicing side of an investment bank) in order to sell it in the market in the hope of buying it back in the future at a cheaper price to profit from the difference.
Short sellers also have to pay the prime broker fees for the right to borrow the stock, so as such it’s a costly business unless you’re confident the stock you’re ‘shorting’ is going to fall. That said short sellers can be wrong as well as right, so investors should always come to their own conclusions on a business.
Let’s take a look at five ASX companies some professional traders are currently betting against. All stats accurate as at Jan 2 2018, according to ASIC.
Bank of Queensland Limited (ASX: BOQ) has 6.5% of its shares shorted, with the Queensland lender already down 21% over the past year. Bank shares generally are being shorted as investors bet rising costs and slowing growth in rates of lending (on the back of lower demand from property buyers) will combine to send profits lower.
BWX Limited (ASX: BWX) is the fast-moving consumer goods company behind the Sukin natural beauty brands and others. It has 12.1% of its shares shorted as traders bet its debt and equity fuelled acquisitive growth strategy is set to unravel. The group’s latest profit guidance is also reliant on an exceptionally strong financial performance for the six-month period ending June 30 2019.
Domino’s Pizza Enterprises (ASX: DMP) is the pizza store franchisor with significant operations in Australia, Japan, France and Germany. It has 9.7% of its shares shorted as speculators bet its overseas adventures might not perform as well as forecast. The Australian market store market may also be reaching saturation point. However, Domino’s has a strong track record of executing well to prove naysayers wrong.
Inghams Group (ASX: ING) is the poultry farmer and retailer that has a whopping 13.7% of its shares shorted. I must admit to being unsure as to why this may be, but Inghams recently announced an intention to conduct a $50 million share buy-back and pay a $125 million special dividend worth 33 cents a share. It had net debt of $145.7 million as at June 30, 2018 and the stock is likely to be volatile as the bulls and bears battle it out.
JB Hi-Fi Limited (ASX: JBH) is the electronics retailer that has 17.4% of its shares shorted as investors bet that competition from the likes of Amazon.com will take its toll on profit margins and market share. I’m unconvinced by this and expect JB Hi-Fi shares could go higher in 2019.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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 Scott Phillips.