In fact, the short interest in the travel stock has increased.
The most recent data from the Australian Securities and Investments Commission (ASIC) found a whopping 14.6% of Flight Centre shares are in the hands of short sellers.
But with travel bouncing back, why are shorters so bearish on the travel agent’s shares?
Let’s take a look at what might make the stock an attractive short buy.
Why are Flight Centre shares a short target?
Flight Centre could be an attractive stock to short for several reasons.
Firstly, the uncertainty that the Omicron COVID-19 variant has brought might have led some to think the travel industry could take longer to recover than previously expected.
As The Motley Fool Australia reported last week, travel agents suffered in late November when the emergence of the mutation spurred the government to mandate quarantine for those travelling from 9 affected countries.
Flight Centre CEO Graham Turner reportedly said shutting borders every time a new variant emerged was unsustainable. However, the likelihood of future interruptions to travel seemingly remains rife.
The company’s financial position also might also draw in short sellers.
He pointed to capital raises undergone by the company during the pandemic that saw it offering $800 million worth of convertible notes.
That means, if the Flight Centre share price goes up, noteholders might convert their notes. However, doing so would dilute the company’s outstanding securities.
More challenges ahead?
Additionally, some experts are concerned about the company’s business model.
King, alongside Ord Minnett, is worried that it’s potentially less profitable than it used to be.
They believe it could face challenges as airlines encourage customers to book directly instead of paying incentives to travel agents.
Additionally, as Flight Centre closed more than half of its physical stores during the pandemic, King believes it might struggle to bring in revenue in the future.
However, not everyone is bearish on the Flight Centre share price.
Goldman Sachs has placed a $20.40 price target on the company’s stock – insinuating a potential 24% upside.
At the time of writing, Flight Centre shares are 1.5% lower trading at $16.44.