Most shorted ahead of earnings

We review how short sellers are reacting to the companies due to announce earnings in the week to come.

• Light earnings sees only seven firms with significant demand to borrow ahead of results
• Ocado is the only European company to see any significant short interest as it reports earnings
• Retailers again make up the entirety of Asian firms seeing significant short interest prior to earnings

North American earnings

As we are still a week away fom the start of the second quarter earnings season, next week only sees about 100 North American companies reporting results. On the short interest side, there are only seven companies with 3% or more of their shares out on loan ahead of earnings.

The most shorted firm, of this weeks’ lot is heavy machinery firm Greenbrier which has 10.7% of its shares out on loan ahead of its results announcement on Wednesday. While short interest in the firm is over five times the average seen across the S&P 500 index, this seems driven by the fact that the firm has a large stock of convertible bonds outstanding and any short interest is therefore likely to be arbitrage driven as opposed to directional. This theory seems to hold if analyst forecasts are anything to go by, as the firm is expected to boost profits by half compared to this quarter last year owing to a strong upturn in revenues.

One firm seeing plenty of directional short selling is telecommunications firm Calamp which has 8.5% of its shares out on loan. The company has seen a surge in demand to borrow over the last three months after its lacklustre results last time around sent shares down by a quarter. Current demand to borrow stands at an all-time high after having jumped eightfold since the start of the year, and while shares have recovered somewhat shorts look willing to stay the course.

Another name to see a large increase in demand to borrow recently is lighting company Acuity which has 5% of its shares out on loan, a number that is a third higher than a month ago. While Acuity also missed its earnings expectations in its fiscal second quarter, its shares are still up by 25% since the start of the year. This begs the question of whether shorts think that another earnings miss could see the start of some downward pressure on the company, which is trading at a 50% premium to its five year forward PE ratio.

The final highlight of the heavily shorted names announcing earnings next week is International Speedway, a firm which manages and operates racetracks across the US. While the firm is no stranger to short sellers, the recent spike in demand to borrow is probably linked to rising gas prices and the fact that NASCAR, its main crowd puller, has been struggling with declining attendance numbers. Rising gas prices are no doubt going to add further pressure to the firms already stretched customer base.

European earnings

Of the 24 firms announcing results this week seeing short interest, only British online grocer Ocado has seen any meaningful demand to borrow. Short sellers had largely given up in Ocado after the firm announced a tie-up with UK grocer Morrison’s. While the firm is expected to report its first ever profit, the growing competition in the UK grocery market looks to have seen Ocado’s shares halve from their recent all-time highs. This in turn has seen shorts return.

Asian earnings

Asia also sees light reporting flow, with seven firms having more than 3% of shares out on loan ahead of earnings.

This week sees a string of Japanese retailers making up the entirety of the heavily shorted shares ahead of earnings. This heavy shorting is no doubt spurred on by the country’s rising inflation which has seen prices climb to their highest level in 32 years. While many are hailing this as a positive sign for a country which has faced two decades of deflation, the short term pain has put the country’s retailers under pressure.

Highlights amongst this week’s crop of announcements are Uny Group, which has 7.2% of shares out on loan, and Familymart, which has seen the largest jump in demand to borrow in the month leading up to earnings.