Here are 5 ASX Stocks That Are Shorted. Are the Shorters Right or Wrong?

Ujjwal Maheshwari Ujjwal Maheshwari, July 5, 2024

There are always ASX stocks that are shorted by investors, willing to bet that a stock going down will continue to, or that a stock trending upward will correct itself. This is done by investors borrowing shares to sell at the current price, hoping to buy them back cheaper when their prices drop.

Short selling is like a mood ring for the market, showing us how skeptical or worried investors are. Those who short sell are often seen as the doubters, the ones who spot overpriced stocks or foresee trouble before it hits. The stocks they pick can give us insights into what might be going wrong with a company, a particular industry, or even the wider economy.

Are short sellers the smart skeptics or are they missing the mark? Let’s see the high-risk strategy of short selling and see what it reveals about the undercurrents of the market.

 

5 ASX Stocks That Are Shorted. Are the Shorters Right or Wrong?

 

Pilbara Minerals (ASX: PLS)

Pilbara Minerals is a big name in the lithium industry, a key ingredient powering the electric vehicle boom. Despite the strong future demand expected for lithium, Pilbara Minerals has caught the eye of short sellers—a group of investors betting on stock prices to fall—who hold a significant 20.7% interest in shorting the company’s stock. This heavy betting against Pilbara points to a deep skepticism about the company’s prospects.

 

Pilbara Minerals Ltd (ASX: PLS)

 

Why are investors so wary? A couple of reasons stand out. First, lithium prices are a big worry. Short sellers seem to think these prices will stay low for a while, which could hurt Pilbara’s bottom line. Also, Pilbara’s stock price itself has been wild lately, plunging to a low of $2.97 recently from a high of about $5.40 in late 2022. This is basically the market’s nervousness about the company’s ability to keep up in the future.

But here’s the thing: the bearish view might not be entirely on point. With the world speeding towards electric cars and renewable energy, the demand for lithium isn’t going anywhere but up. If Pilbara Minerals can steer through these choppy price waters and secure its spot as a go-to lithium provider, there’s a good chance its stock could bounce back. While short sellers have been making hay during the stock’s recent troubles, the long game for Pilbara Minerals could tell a very different story.

 

IDP Education (ASX: IEL)

IDP Education, known for its language testing and student placement services, is on the radar of short sellers who currently hold a 13.3% short interest in the company. The recent tightening of student visa regulations in crucial markets has already dented the company’s performance, and things could get worse before they get better. On July 1, the government substantially increased visa application fees (to A$1600), which are non-refundable if unsuccessful and are multiple times several competing countries’ equivalent fees (Canada’s is only ~A$185 for instance). There is also talk of students needing to sit an entry exam to get through. This is fuelling a bearish outlook among investors.

 

IDP Education Ltd (ASX: IEL)

 

Despite these hurdles, there are signs that the market might be underestimating IDP Education’s strength. The company’s potential for growth remains robust, buoyed by the ever-growing global demand for higher education and language proficiency tests. Additionally, a vote of confidence comes from within the company itself, with non-executive director Tracey Horton buying shares amid the downturn. This insider purchase might signal a strong belief in the company’s enduring value.

While the market’s wary response to the regulatory changes is understandable, it could well be an overreaction. As the dust settles and IDP Education adjusts to these new rules, there’s a good chance the company’s stock will rally. This makes the current short positions potentially risky, especially if market sentiment takes a positive turn. Nonetheless, it will likely take both sides of Australian politics to take a U-Turn in their attitudes towards foreign students, and this could take a while…we’re talking after the next federal election.

 

Australian Clinical Labs (ASX: ACL)

Australian Clinical Labs, a health imaging company, is currently facing some tough times with a short interest of 9.2%. This means a lot of investors are betting that the company’s stock price will drop because they’re expecting profits to go down in FY24. They are also disillusioned with its failure to buy Healius (ASX:HLS), in a move that would’ve seen it rival Sonic (ASX:SHL) as the largest pathology provider. Because of this, there’s been quite a bit of short selling.

 

Australian Clinical Labs (ASX: ACL)

 

Right now, short sellers might seem like they’re making the right call, especially if ACL doesn’t hit its earnings target and lives in the shadow of Sonic. Given the need for healthcare generally and pathology specifically, there might be better days ahead for the company, but there’s no guarantee. Of course, the dream of the company taking market share from Sonic seems more remote than it did this time last year.

 

Cettire (ASX: CTT)

Cettire, an online retailer of luxury goods, has seen its stock price take a serious hit, dropping over 75% from its all time highs. It has been a year to forget for Cettire with the CEO selling millions of dollars in shares, investors questioning the company’s business model after an AFR investigation, falling margins and softening demand.

 

Cettire (ASX: CTT)

 

If Cettire manages to overcome these challenges, there could be upside – but it is too big an if at this stage to definitively say short-sellers are wrong.

 

Flight Centre (ASX: FLT)

Flight Centre has seen its short interest climb to 10.3%. A major player in the travel services industry, the main worries fuelling this interest are a dip in consumer spending and tough revenue conditions in the travel sector. Yes, travel demand is high, but the industry is fiercely competitive, including amongst travel agents. And it is less lucrative than pre-COVID with many airlines slashing commissions paid.

 

Flight Centre Travel (ASX: FLT)

 

What short-sellers appear to be forgetting is that Flight Centre is more than just the brick and mortar outlets. It owns several brands including luxury tour provider Scott Dunn (bought in early 2023 for $180m) amongst others, along with certain foreign currency exchange services, and travel academies. Heck, it even has a stake in 99 Bikes.

For investors willing to see Flight Centre is different from its peers, there could be potential for big returns for those willing stick with it through the ups and downs.

 

Going against the odds?

Short selling is like playing in the high stakes table—it can lead to big wins but also comes with its fair share of risks. While the skepticism towards these stocks is based on real concerns, it’s crucial to dig deeper into their long-term prospects and basic strengths.

It’s important to remember that short interest isn’t a surefire predictor of a stock’s future trajectory. Sure, short sellers might get it right now and then, but the market is always shifting, and today’s losers could be tomorrow’s winners. Each of these companies has the potential to turn things around and reward those investors who dare to go against the grain.

 

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