Every now and then it's worth taking a look at ASIC's list of what companies on the local market are being heavily shorted or not. Professional investors won't bet heavily on a stock price going down for nothing, so even if they turn out to be wrong it's worth considering what's motivating their bets.
Let's take a look at four businesses below that according to ASIC have a fair bit of their outstanding shares shorted as at October 8 2019.
Webjet Limited (ASX: WEB) has 6.5% of its scrip shorted which is probably a result of shorters betting the Thomas Cook bankruptcy is going to hit Webjet harder than management are letting on.
It also got into a fight with its auditor recently over its financial reporting related to the original Thomas Cook deal. Recently, Flight Centre Travel Group Ltd (ASX: FLT) also warned over soft leisure travel conditions in Australia. Overall, we can see why short interest is increasing.
The a2 Milk Company Ltd (ASX: A2M) has 7.1% of its scrip shorted, which is about as high as I can remember. Shares trade on a high valuation and the new CEO has a disappointing track record of selling her own shares. China is also an unpredictable market that may also be encouraging short sellers.
Reliance Worldwide Corporation (ASX: RWC) is the plumbing supplies business that has a mixed track record as a public business that includes missing an early profit forecast. It also recently completed a $1.2 billion acquisition of UK plumbing supplies business John Guest. While these kind of huge acquisitions can be exciting for investors, if it turns out Reliance paid too much the stock could slide.
Perpetual Limited (ASX: PPT) has 9% of its stock shorted, which is about as high as I can remember. The fund manager recently reported $1.8 billion of net outflows for the September quarter to leave total FUM at $26.6 billion. Operating leverage works both ways for fund managers and while Perpetual has the option to cut staff costs this may hurt the top line further.
