Every day the corporate regulator ASIC publishes a document showing what percentage of stock on issue members of the S&P/ ASX200 (ASX: XJO) have shorted.
Short sellers are effectively betting on a company’s share price falling in the future so if a company has more than 10% of its shares on issue shorted then it suggests some professional speculators or traders are pretty confident it’s in for a fall.
So let’s take a look at three popular companies that currently have more than 10% of their outstanding stock shorted as at 18 March 2019.
NextDc Ltd (ASX: NXT) has 12.6% of its shares shorted as speculators bet its upcoming capital investments in new data centres may not produce a strong return on invested capital. Arguably it’s also being bet against due to the fact it trades on a high multiple of trailing profits. The stock is likely to be volatile due to the battle between the bulls and bears.
Metcash Limited (ASX: MTS) has 11.6% of its shares shorted as traders bet the IGA store supplier is facing competitive headwinds from the likes of Coles Group Ltd (ASX: COL) and Woolworths Limited (ASX: WOW). While its IGA business is facing problems, its hardware business under the Mitre10 brand is performing well, as such this stock could also be volatile over the next 12 months.
JB-Hi Fi Limited (ASX: JBH) is the electronic goods retailer that has 16% of its shares shorted as speculators bet that online competition from discounters like Amazon or Kogan.com Ltd (ASX: KGN) could hit it. As such JB Hi-Fi faces potential profit margin and market share pressure. On the other hand it has an impressive track record of growth and may prove shorters the wrong.
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Motley Fool contributor Tom Richardson owns shares in Amazon. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Kogan.com 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.