Last week we saw how short selling shares is a dangerous game after stock in the heavily shorted baby formula business Bellamy’s Australia Ltd (ASX: BAL) rose 55% in a day on the back of a takeover bid.
Almost every short in that stock will be nursing heavy losses now with little option other than to close the position or pray that the takeover offer fails to go ahead for one reason or another.
So while shorts can be spectacularly wrong, it’s still worth taking a look at what businesses many market participants are confident will fall in value. Below are four heavily shorted businesses. All data accurate as at September 17 according to ASIC.
Blackmores Limited (ASX: BKL) is the vitamins manufacturer and retailer that has 9.7% of its scrip shorted. Sales into China have slowed down over the first half of calendar 2019 and short sellers may be betting this is a structural issue. The stock is also arguably on a high valuation given it’s struggling to deliver consistent profit growth.
Collection House Limited (ASX: CLH) is the purchased debt ledger collection business with 7.7% of its shares shorted. It has a mixed track as a public business and recently invested $8.5 million in “neo-bank” Volt Bank under its ebullient new CEO. Short sellers seem unconvinced though.
Domino’s Pizza Enterprises Ltd (ASX: DMP) is the pizza franchisor that recently abandoned 12 month profit guidance in favour of more general long term targets over same-store sales growth and new store openings. Short sellers are sceptical with 10.1% of the scrip shorted.
IOOF Holdings Limited (ASX: IFL) has 9.5% of its scrip shorted and its 21% share price rise since Friday on the back of a legal victory illustrates the risks around shorting. For short sellers scrambling to cover on good news losses can be magnified as they have to compete with ‘long only’ buyers to get their hands on rising stock as sentiment suddenly improves.
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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 Blackmores 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.