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Most Shorted Stocks on the ASX – April 2016

Most Shorted Stocks on the ASX – April 2016
The 'short seller’ sells a stock at today’s price with the expectation to buy it back at a cheaper price in the future.
Apr 18, 2016 By Simon Herrmann Tags: Short-Selling

Every month, Wise-owl publishes a list of the most shorted stocks on the ASX. While there could be many reasons for an investor to buy a stock, there is usually only one reason why a trader would ‘short’ a stock: The trader expects the stock to decline in value.

Short Selling Explained

The traditional approach of investing - in simple terms – consists of buying a stock at today’s price with the expectation of selling the stock at some point in the future at a higher price. However, it is worth noting that an investor might have a number of reasons to buy a stock, which include dividends or voting rights.  This conventional approach is called ‘going long’ and most investors are familiar with this concept.

However, the’ short seller’ sells a stock at today’s price with the expectation to buy it back at a cheaper price in the future. As the trader does not own the stock initially, he/she has to borrow the stock from a lender and thus sells a stock that is currently not owned. The concept of short selling is pretty simple as the short-seller hopes to re-purchase (“covering”) the stock at a cost that is lower than the proceeds that were received at the initial sale. Short selling is typically done through a broker or via derivative contracts such as Contracts for Difference (“CFDs”).

What is “Days to Cover” in Short Selling?

Find below a common definition of the expression ‘days to cover”:

“Days to cover is a measurement of a company's issued shares that are currently shorted, expressed as the number of days required to close out all of the short positions.” – Source: Investopedia.

Days to cover is often considered the best indicator for the most shorted stocks, as opposed to simply looking at the percentage rate of short-sellers. A low short interest on an illiquid stock could be more significant than a large short interest on a highly traded stock. Thus, for the purpose of this list, Wise-owl will look at both factors to ensure the most accurate representation of the most shorted stocks.

Top 10 Most Shorted Stocks on the ASX

All data is as of 18-April 2016. No guarantee is made for the accuracy of this data.

 

 

Company

Days to Cover

% Short

1.        

Woolworths Ltd (ASX:WOW)

 27

9%

2.        

Invocare Ltd (ASX: IVC)

 27

7%

3.        

Metcash Ltd (ASX: MTS)

 23

17%

4.        

Orica ltd (ASX:ORC)

 23

12%

5.        

ARB Corporation (ASX:ARB)

 23

5%

6.        

Flight Centre Group (ASX:FLT)

 21

11%

7.        

Adairs Ltd (ASX:ADH)

 21

1%

8.        

Seek Ltd (ASX:SEK)

 20

7%

9.        

Mesoblast Ltd (ASX:MSB)

 19

5%

10.    

Seven Group Hldgs (ASX:SVW)

 19

4%

 

Diversified retailer, and owner of Australia’s largest supermarket chain, Woolworths (ASX:WOW) tops the list this month, with 9% of all stock being short-traded. Based on the average trading volume of the stock it would take 27 days to cover all short positions. The stock has declined 22% during the past 12 months, following disappointing sales growth, increasing compeitions, write-downs and the disastrous investment in the Masters Homes Improvement section. Despite Woolworths solid dividend payout ratio, a large number of short-sellers are betting on further declines of the market cap of Australia’s largest supermarket operator.

The Top 3 are completed by funeral services provider Invocare Limited (ASX:IVC) and Metcash Limited (ASX:MTS). Invocare posted relatively flat results for FY15 as sales revenue rose 5.7% and profit rose 0.6%. The company kept the final dividend steady at 22.25 cents per share. Metcash is up 3% year-to-date and has gained 19% in the past year. The stock has been travelling downwards for the past 10 years, however the company announced stable half year results last year, which seemed to have halted the declines temporarily.

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Simon Herrmann Author: Simon Herrmann Apr 18, 2016

Simon is a financial analyst at independent research firm Wise-owl who wants to change the world by disrupting the cliché approach to investment decision making with convergent thinking. Wise-owl’s goal is plain and simple: Find the best opportunities for our members by following a proven methodology and to create long-term value through high-quality advice, innovation, technology and education. We combine industry experience and the agile mentality of a start-up. Wise-owl is the future of stock market investing.

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