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Why the Treasury Wines share price shot higher today

The Treasury Wine Estates Limited (ASX: TWE) share price climbed 3% to $15 this morning despite the wine merchant not releasing any specific news to the market. The company has divided the bulls and bears of late due to its forecast for strong double digit multi-year earnings growth against a backdrop of a substantial debt load and unpredictable overseas markets.

Thanks partly to the reported strength of overseas demand the group is forecasting 25% EBITS growth in FY 2019 and growth of between 15% to 20% in FY 2020, which if delivered would be impressive and probably make the stock good value at today’s valuation. 

According to ASIC, Treasury currently has 3.1% of its shares shorted which is not particularly high, but it has also been the target of short seller accusations that it has been “channel stuffing” in the U.S. market for example, where it sells a load of stock to a wholesale distributor and books the revenue even though the stock has not actually been bought by consumers. This practice is legitimate but can artificially inflate sales, before subsequent falls.

Either way Treasury has denied the practice and short sellers evidently have a big financial interest in making sometimes unproven accusations against a business. 

For shareholders then the stock is likely to remain volatile in the year ahead. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates 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.

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