Short-sellers are increasing their bearish bets against a number of small cap stocks over the past month.
This doesn't bode well for these emerging ASX stocks as rising short-selling interest usually weighs on the performance of the targeted stock.
Investors should be on alert! Short-sellers tend to be more sophisticated than the average investor and their willingness to put money where their pessimism is can be telling.
Short sellers are those borrow stock to sell on-market in the hope of buying it back later at a lower price. This enables them to profit from the difference.
Small cap with the biggest increase in shorts
It's not enough to just look at the total amount of a company's stock that is being short-sold. The increase over time in short-interest can be a better predictor of how a stock will trade in the shorter-term.
The stock in the S&P/ASX SMALL ORDINARIES (Index:^AXSO) (ASX:XSO) index that saw the biggest increase in the number of its shares being short-sold is the Mineral Resources Limited (ASX: MIN) share price.
Short-interest in the mining services group jumped 3.3 percentage points to 11% over the month to December 4, according to ASIC's latest data which is always a week behind.
This makes the stock one of the most shorted stock on the market.
Losing direction
Second in line is the Nearmap Ltd (ASX: NEA) share price. The stock rallied 77% over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index "only" managed a 21% gain.
Its outperformance may be attracting sceptics. The amount of Nearmap shares being short sold jumped 2.2 percentage points to 11.3% since 5 November.
The company's solid full year results didn't seem to put off the short-sellers either.
Poor connection
The small cap that experienced the third largest increase in short-interest is the Speedcast International Ltd (ASX: SDA).
Short-interest in the satellite services group jumped 2.1 percentage points to 13.7% over the period. Short-sellers are probably in the money on this one as the SDA share price lost nearly a quarter of its value over past month.
Speedcast may be suffering from indigestion. Management is an aggressive acquirer of businesses and it may have overestimated the synergies from buying over related companies to scale up its business.
If you are looking for stocks with the potential to outperform in 2020, you might want to check out this free report from the experts from the Motley Fool.
Follow the free link below to find out more.
