Every day the corporate regulator ASIC publishes a list of what percentages of outstanding shares companies on the S&P/ ASX200 (ASX: XJO) have shorted as at a fixed date. If a company has a high amount of its outstanding shares shorted (say over 10%) then it's fair to say some hedge funds are betting heavily on its share price falling in the future.
So let's take a look at three businesses being bet against and consider why this may be. All stats accurate as at 31 May 2019.
Galaxy Resources Ltd (ASX: GXY) is the lithium miner with tenements in Sal De Vida Argentina, Canada and Mt Cattlin Western Australia. As at March 31 2019 it had US$285 million cash on hand and no debt, while mining 1,168,120 bcms of lithium product over the quarter at an average cash cost of US$453 per dry metric tonne. It looks reasonably solid as miners go, but short sellers are probably betting that falling lithium prices will make its mines uneconomical.
JB Hi-Fi Limited (ASX: JBH) has 15% of its outstanding shares bet against probably as hedge funds are betting overseas discounters will hurt JB hi-Fi's profit margins and take market share in a double-whammy type effect. However, JB Hi-Fi has a strong market position and track record of growth so it may prove the short sellers wrong.
NextDC Limited (ASX: NXT) is the data centre operator and builder that has taken on a lot of capital for some upcoming construction projects. It also trades on a high profit multiple to mean some might be betting against it on valuation grounds. It has 12.3% of its shares shorted.
