Owning a company that has a high percentage of its shares held short is something worth digging a little deeper into. Since short sellers gain when the company’s share price falls, it will often indicate there is negative sentiment around its future.
However, how concerned should you be and is it worth selling your shares over?
Let’s take a look at how the most shorted ASX shares from this time last year have performed over the previous 12 months to help answer this question.
Galaxy Resources Limited (ASX: GXY)
Galaxy Resources had 17.1% of its shares held short at the beginning of February last year. It’s not too different now with short interest at 18.7%. Pleasingly for the short sellers, the lithium miner’s shares have been on a fairly consistent dive, falling 43% from $2.02 12 months ago to trade at just $1.155 today. With the continued short interest, it appears investors are concerned with the supply of lithium outgrowing its demand as prices continue to fall.
Syrah Resources Ltd (ASX: SYR)
Syrah Resources is another company that has seen an increase in short interest over the previous 12 months, rising from 16.7% to 17.5%. This graphite miner has also watched its share price fall steeply over this period from $1.43 to just $0.545 today. This represents a fall of 62%.
JB Hi-Fi Limited (ASX: JBH)
JB Hi-Fi shares have moved in the other direction, bringing pain to those who held its shares short 12 months ago. The company had a 15.9% short interest due to fears of a housing market slow down and subsequent weakness in the electronics/white goods market. However, as we’ve seen, the housing market has looked to rebound after posting gains recently. The JB Hi-Fi share price over the last 12 months has rallied a massive 77% to sit at $40.28 today.
Inghams Group Ltd (ASX: ING)
Inghams had 15.5% of its shares held short 12 months ago when it traded near its all-time high. However, thanks to some difficulties in growing margins due to rising feed and energy costs, Inghams posted a fall in net profit after tax. The Inghams share price has since followed suit, shedding 23% of its value to sit at $3.59 today.
Orocobre Limited (ASX: ORE)
12 months ago, Orocobre had short interest of 13.5%. However, its shares have risen 8% over the past year to trade at $3.70 today. Despite the softer market conditions, investors appear pleased with Orocobre’s recent quarterly results where the company managed to cut operating costs by 16% quarter on quarter.
InvoCare Limited (ASX: IVC)
InvoCare shares have risen around 11% over the past 12 months with 13.2% of its shares held short this time last year. The company continues to make acquisitions in an industry with strong tailwinds and currently trades at $13.30.
Metcash Limited (ASX: MTS)
Metcash shares have ended slightly up over the last 12 months by 3%. The food, liquor and hardware retailer posted a small increase in total sales for 1H20. In these results, the company’s food and liquor businesses posted gains while its hardware segment declined 4.2%. Not included in the share price gain is the 7% grossed-up dividend Metcash paid over the prior 12 months, giving Metcash shares a total return close to 10%.
Nextdc Ltd (ASX: NXT)
NextDC has been another riser over the prior 12 months, despite having 12% of its shares shorted this time last year. The data centre solutions operator has seen its share price rise 13% to sit at $7.79 today.
BWX Ltd (ASX: BWX)
BWX will be a company short sellers wish they had never targeted. 11.9% of the personal care products company was held short last year after a sizeable profit downgrade. However, the BWX share price has gone on to triple in that time, rising 204% to sit at $4.35 today.
Myer Holdings Ltd (ASX: MYR)
Myer had 11.6% of its shares held short this time last year. Since then, the Myer share price has been up and down, ending up 21% for the 12-month period. The retailer has been tackling costs and deleveraging its business while also growing online sales strongly.
As you can see, only 3 of the 10 most shorted shares from 12 months ago have lost value today. In fact, if we take the average gain/loss for the 10 companies over this period, we see a gain of around 20%, and this doesn’t include dividends!
While I think it’s important to follow the companies you own and dig a little deeper if short interest rises, I don’t think it’s a good idea to sell based on this factor alone.
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Motley Fool contributor Michael Tonon has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended InvoCare 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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