Short and Caught: The stocks investors are shorting right now

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Short & Caught is Stockhead’s fortnightly recap of which ASX small cap stocks are heavily shorted. Stocks that are shorted have investors betting that they fall.

Shorting works by “selling” stocks you do not actually own in the hope of buying it back at a lower price.

Because shorting is restricted under Australian law, any substantial shorting of stocks is worth knowing about even if you own these stocks and only trade “long”.

Short interest

Short interest is the main measure by which Stockhead looks at shorting. Shorting is not a quick buying and selling activity, traders wait months to close out trades (especially if in the short term they are wrong).

This fortnight we have decided to look at stocks whose short interest has changed over 60 per cent in the last month – signifying recent activity.

Rare earths explorer Arafura Resources (ASX: ARU) has seen a 19,000 per cent increase in the short interest against it. After rising from 4 cents to 14 cents in six weeks it has fallen nearly 35 per cent in the last month after a capital raise. While its short interest is only $4.4 million, this has substantially increased in recent weeks.

Next is Strike Energy (ASX: STX) which has found 5,908 per cent more short interest against it. Recent days have proven the shorters wrong as gas results doubled the company’s share price last week.

Short interest against Macmahon’s Holdings (ASX: MAH) is up 842 per cent. This company has fallen 30 per cent since February. In recent days the company is expanding by acquiring GBF Group for $48 million.

It expects earnings this year to be $70-$80 million but we are yet to see the final figures and have been given no guidance on next year’s earnings.

Millennium Minerals (ASX: MOY) are another miner likewise being shorted. This company’s trade is gold which has had a solid 2019. But since hitting the magic A$2,000 an ounce mark it has stagnated.

Millennium expects 34,716 ounces produced in the last half year.

Health stocks have not been forgotten by shorters. The short interest against Bard 1 Life Sciences (ASX: BD1) is up nearly 300 per cent this month. It only raised $1.3 million in a rights issue where it sought $2.5 million, although a private placement raised $5 million and the shortfall was covered. Otherwise there has been little news in the last month.

Finally on this list is biotech Immutep (ASX: IDP). It is undertaking several clinical trials for its anti-cancer drugs and recently raised $10 million.

Short interest ratio

Stockhead has also revisted the short interest ratio – calculated by dividing the volume of shares shorted by its average daily trading volume.

The ratio measures how many days it would take for all the shares being shorted to be traded at current volumes and so the bigger it is, the more it is ‘shorted’.

The most shorted stock by this metric was iSelect (ASX: ISU). Yes, this iSelect:

iSelect sits 5 per cent down in 2019 but has risen from 60 cents to 70 cents in July. A concern for the company is an ongoing ACCC investigation against it regarding statements on its energy comparison website.

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A new name was noticed was Amaysim (ASX: AYS). It is one of those tech stocks that is growing off the back of partnerships but is yet to reach profitability. Its half yearly loss was $4.8 million.

The loss consequently sent it down 30 per cent in the first quarter. It has been recovering but the short interest ratio suggests investors think this will be short-lived.

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