Short & Caught: Core Lithium most shorted ASX stock as Megaport back in the penthouse
Short sellers effectively borrow a stock from a broker, and go wager it (sell it) on the open market. The plan is to then buy the same stock back later after it’s made a hefty drop in price. That done, the short seller buys it back at the lower price and returns it to the lender.
The difference between the sell price and the buy price is the short seller’s profit. Investors are in effect betting they will fall.
Because shorting is restricted under Australian law (and because it’s an all or nothing bloodsport) any substantial shorting of stocks is worth knowing about, even if you only trade long.
And perhaps there’s method in the madness.
Stockhead has utilised the number of short positions as a percentage of total shares on issue. The most ASX shorted stocks (excluding CDIs) all have 5% or more.
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Core Lithium (ASX:CXO) is now the most shorted stock on the ASX. Its short position is 11% as short sellers also target other lithium stocks including Sayona Mining (ASX:SYA), Lake Resources (ASX:LKE), and Pilbara Minerals (ASX:PLS).
CXO has plunged 34% in the past month after providing its latest quarterly activities report where the miner noted its Finniss lithium mine in the NT would significantly underperform the DFS study that underpinned its investment decision in 2021.
Early forecasts for the next two years have come in well below the 175,000tpa run rate envisaged in the original DFS. Core has set guidance of 90,000-100,000t of spod sales in FY24 at C1 costs of $1165-1250/t, with production of 80,000-90,000t anticipated.
Having experienced significant growth in 2022, lithium prices have softened in 2023. The Lithium Carbonate EXW China (Battery) price has fallen ~48% YTD, while the Lithium Hydroxide EXW China price is down ~51% YTD.
Shares in the travel stock have been boosted since it released a full year profit upgrade in July. FLT says based on preliminary trading data, the company now expects to report underlying EBITDA between $295 million and $305 million for FY23.
The company’s shares are up 15% in the past month and 54% YTD as after the travel sector continues its recovery from the Covid-19 pandemic.
Meanwhile, IEL, which specialises in international student placement services and high-stakes English language testing, has seen its short position rise and is now also one of the most shorted ASX stocks.
The company also operates English language schools in Southeast Asia and organises educational events and conferences across the globe.
IEL saw a sell-off in late May after Canada’s decision to recognise additional providers for English language proficiency for its visa scheme but it has recovered and risen more than 12% in the past month.
At the time IEL responded to an ASX price query, saying the decision to open up the market wasn’t expected to have a material impact on its FY23 revenue or earnings.
The IEL share price is down ~11% YTD.
Tech stock Megaport (ASX:MP1) has seen its short position drop to 2% from 8% much to the delight of founder and chairman Bevan Slattery.
The Queensland entrepreneur took over as interim CEO in March following the resignation of Vincent English before Michael Reid took over as CEO in May, where he came from Cisco as chief revenue officer for SaaS business ThousandEyes.
In a recent LinkedIn post, Slattery said he took a screenshot in April when Megaport was the most shorted ASX stock with a short position of 10%.
“Fundamentally, Megaport was an amazing business, had outstanding growth, loyal and sticky customers, a gross margin, barier to entry and a space that continues to grow – so many attributes of a successful business,” Slattery says in the post.
“But what it lacked was focus, fiscal discipline and leadership.”
Slattery says that’s what shareholders and investors were telling MP1 both in meetings and its short position.
“In the space of 120 days there was a $40m annual cash turnaround in the business, a reinvigorated focus on being a product/customer lead business and the team started rowing together in the same direction,” he says.
“We still have a lot to achieve and a massive opportunity ahead of us.”
He went on the say: “You can’t appreciate the penthouse if you haven’t spent time in the ****house. Well this was indeed a ****house moment.”
In its Q4 FY23 results MP1 says it achieved transformational improvements in EBITDA and net cash flow during the quarter, including a positive Net Cash result for the first time in its history. Net Cash at June 30, 2023 was $33.3 million, up $2.3 million over the quarter.
Following continued improvement in the company’s operating and financial performance in Q4 FY23 MP1 has upgraded its guidance for FY23 mormalised EBITDA to be in the range of $19 to $21 million.
The MP1 share price is up 68% YTD to $10.29/share but still well below its highs of more than $21 in November 2021.
Graphite producer Syrah Resources (ASX:SYR) is also one of the most shorted stocks on the ASX. SYR’s shares have faced downward pressure as the company had to scale back its graphite production in response to subdued demand and declining prices.
SYR shares have fallen more than 65% YTD.
Cost of living pressures from sticky inflation and interest rate hikes has also seen several ASX consumer discretionary stocks on the short sellers list including JB HiFi (ASX:JBH), Temple & Webster (ASX:TPW), Harvey Norman Holdings (ASX:HVN), and Baby Bunting (ASX:BBN).