Every now and then I like to take a look to see what shares professional investors are betting most heavily on falling. Fortunately, the regulator, ASIC, provides a daily list of the percentage of stock on issue a listed company has 'short sold'.
Anything over 5%, or 1 in 20 shares on issue, is a fair amount shorted and suggests some are taking big bets a stock is set to fall.
So let's consider why professional investors are betting against these five businesses (data accurate as at February 28).
Bellamy's Australia Ltd (ASX: BAL) had 10.45% of its shares shorted yet the share price has rocketed nearly 25% since February 28.
Short sellers may be betting on Bellamy's running into problems in China, but the sharp rise in share price over the past week is probably the result of them closing positions (buying back shares to return to the lender) at a probable loss. The resultant price spike is known as a 'short squeeze' where short sellers buy back stock at the same time out of fear that if they wait the share price will run higher.
BWX Limited (ASX: BWX) had 11.6% of its stock shorted and also spiked in price from $1.60 up to $2.40 after the Sukin manufacturer reported its interim profits on February 22. The price spike is probably also the result of a 'short squeeze' triggered by results better than the market and short sellers expected. However, BWX is not a business I'm keen on.
JB Hi-Fi Limited (ASX: JBH) had 12.8% of its stock shorted and has been a popular short seller target for the last couple of years. This is surprising to me, but short sellers are probably betting the likes of discount retailers Amazon will hit it with a double whammy of shrinking market share and profit margins.
Myer Holdings Ltd (ASX: MYR) shares jumped 14% to 47 cents in early trade today after it reported sales over its key Christmas shopping quarter 'only' fell 1.4%, while gross operating profit margins climbed. This may have been enough to trigger a small short squeeze, alongside some bargain hunting from 'long' investors.
Nextdc Ltd (ASX: NXT) has 10.4% of its stock sold short as investors bet the data centre operator is over-valued based on its upcoming capital expenditure commitments and relatively small profits compared to its market cap. The stock could stay volatile as bulls and bears battle it out.
Just because a short seller thinks a stock will fall doesn't mean it will, in fact the opposite can happen as we've seen with Bellamy's this week. As such readers shouldn't place too much emphasis on the size of short positions.
