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2020 has been a roller coaster for short-sellers. Short selling has been among the least profitable market strategies over the past few years. Despite high valuations, a relatively poor economy, high political and social uncertainty, and numerous other potential issues, stocks seem to only go in one direction.
This is particularly true for the companies that investors expect to have the worst performance. Today, the most short-sold stocks among major companies (excluding pharma & biotech) include:
| Ticker | Name | Short Interest | Outstanding | Industry |
| (GME) | GameStop Corp. | 136.04% | 65.16M | Retail (Technology) |
| (SPCE) | Virgin Galactic Holdings Inc. | 78.28% | 195.59M | Investment Holding Companies |
| (BBBY) | Bed Bath & Beyond Inc. | 61.07% | 126.03M | Retail (Specialty Non-Apparel) |
| (FIZZ) | National Beverage Corp. | 59.94% | 46.63M | Non-Alcoholic Beverages |
| (GOGO) | Gogo Inc. | 53.22% | 83.77M | Communications Services |
| (SKT) | Tanger Factory Outlet Centers | 52.95% | 93.47M | Real Estate Operations |
| (DDS) | Dillard’s, Inc. | 47.49% | 18.37M | Retail (Department & Discount) |
|
(SRG) |
Seritage Growth Properties | 46.47% | 38.64M | Real Estate Operations |
| (MIK) | Michaels Companies, Inc. | 44.09% | 147.44M | Retail (Specialty Non-Apparel) |
| (SFIX) | Stitch Fix, Inc. | 43.70% | 57.01M | Online Services |
(Data Source – HighShortInterest)
Biotechnology/pharmaceutical companies are excluded from the list since they are often short-sold not for economic or financial reasons but due to internal research-related factors.
Overall, there are a few major categories of companies with very high short-interest. The paramount is Retail which includes 40% of this basket. After that is Real Estate with Seritage and Tanger being retail-centric REITs. Other than that is Virgin Galactic, Gogo Inc., and Stitch Fix which are all highly-valued “emerging technology”-type companies in which speculators believe could be overpriced. Most of these companies have had a very high-short interest for months.
These ten companies have very high short-interest with most having half of their shares outstanding being sold short. This means many investors are very bearish on the companies. Additionally, Retail appears the dominant short-play which is reasonable considering COVID-19 has further exacerbated the move toward E-commerce. Indeed, the ‘Retail-Apocalypse’ may be in its final and most deadly phase which could cause many of these companies to decline toward zero. More on this in “Assessing Survival Potential: Seritage Growth Properties“.
Short Squeeze Propelling Weak Companies Higher
Despite the poor fundamentals of many of these companies, most of these stocks have seen very strong performance over the past few weeks. Many even have positive performance year-to-date.
This is shown in the chart below:
(Data Source – Google Finance)
The “Index” is the geometric mean of all which gives us the hypothetical performance of an equal-weighted portfolio of these stocks. The index is far more volatile than the S&P 500, declining just over 60% during the worst of the March crash. Despite that, these stocks on average have actually outperformed the S&P 500 YTD and have more than doubled in value since March lows.
This begs the question, are these stocks truly rebounding or are they merely in a ‘dead-cat-bounce’ type of short-squeeze? Most of these companies had a very poor performance during 2019 and saw short-interest rocket during that period. As you can see below, short-interest has not changed much during most of 2020 despite significant volatility:
Data by YCharts
Put simply, short-sellers are hanging on tight despite the huge performance spike. This is a sign that sellers are still convinced that these companies will cave to weak fundamentals. On that note, all but two of these companies (National Beverage Corp. and Michaels) have negative EPS. GameStop and Gogo Inc. have the worst earnings yields at -40% and -24% respectively.
Indeed, with COVID-19 lasting longer than most anticipated and the retail apocalypse continuing to worsen, it seems many of these companies will struggle to survive over the next two years. Many deep-value investors are betting they will turn around and short-sellers are being squeezed, but evidence suggests they may have the last laugh.
Short Interest and Stock Performance
In general, companies with higher short-interest have had greater stock price performance over the past three months. This is partly due to the fact that more investors may be short-selling as stock prices rise. However, the opposite is usually true as rising stock prices force short-sellers out of their position. Additionally, the vast majority of these companies have been among the most short-sold for the entire year.
Here is an expanded list of HighShortInterest’s most short-sold stocks, again excluding biotechnology and pharmaceuticals:
| Ticker | Company | Short Interest | 3-Month Performance | Industry |
| (GOGO) | Gogo Inc. | 53% | 217% |
Communications Services |
| (BBBY) | Bed Bath & Beyond Inc. | 61% | 181% |
Retail (Specialty Non-Apparel) |
| (SPWR) | SunPower Corporation | 39% | 180% | Semiconductors |
| (GME) | GameStop Corp. | 136% | 171% |
Retail (Technology) |
| (HIBB) | Hibbett Sports, Inc. | 28% | 148% |
Retailers – Apparel & Accessories |
| (DDS) | Dillard’s, Inc. | 47% | 132% |
Retail (Department & Discount) |
| (SIG) | Signet Jewelers Ltd. | 27% | 104% |
Retailers – Apparel & Accessories |
| (RRGB) | Red Robin Gourmet Burgers, Inc | 26% | 73% | Restaurants |
| (CVNA) | Carvana Co. | 28% | 66% |
Retail (Specialty Non-Apparel) |
| (MIK) | Michaels Companies Inc. | 44% | 57% |
Retail (Specialty Non-Apparel) |
| (BKE) | Buckle Inc. | 25% | 46% | Retail (Apparel) |
| (CAKE) | Cheesecake Factory Inc. | 31% | 44% | Restaurants |
| (SDC) | SmileDirectClub Inc. | 35% | 42% |
Medical Equipment, Supplies & Distribution |
| (LOVE) | Lovesac Co. | 26% | 42% |
Home Furnishings |
| (SCVL) | Shoe Carnival, Inc. | 35% | 42% |
Retailers – Apparel & Accessories |
| (RH) | RH | 26% | 41% |
Retail (Specialty Non-Apparel) |
| (SRG) | Seritage Growth Properties | 46% | 39% |
Real Estate Operations |
| (SFIX) | Stitch Fix Inc. | 44% | 23% | Online Services |
| (FIZZ) | National Beverage Corp. | 60% | 22% |
Non-Alcoholic Beverages |
| (SPCE) | Virgin Galactic Holdings Inc. | 78% | 15% |
Investment Holding Companies |
| (TREE) | LendingTree Inc. | 26% | 11% |
Consumer Financial Services |
| (AKTS) | Akoustis Technologies Inc. | 25% | 9% | Semiconductors |
| (EBIX) | Ebix, Inc. | 31% | 7% |
Computer Networks |
| (DDD) | 3D Systems Corporation | 34% | 4% |
Computer Peripherals |
| (SKT) | Tanger Factory Outlet Centers | 53% | -1% |
Real Estate Operations |
| (TR) | Tootsie Roll Industries, Inc. | 41% | -3% |
Food Processing |
| (AMC) | AMC Entertainment Holdings Inc. | 39% | -4% | Motion Pictures |
| (PETS) | PetMed Express Inc. | 30% | -8% | Retail (Drugs) |
| (JWN) | Nordstrom, Inc. | 40% | -11% |
Retailers – Department Stores |
| (WPG) | Washington Prime Group Inc. | 37% | -19% |
REITs – Commercial |
| (FRAN) | Francesca’s Holdings Corp. | 30% | -25% |
Retailers – Apparel & Accessories |
| (REV) | Revlon Inc. | 41% | -26% |
Personal & Household Products |
| (RAD) | Rite Aid Corporation | 26% | -34% | Retailers – Drug |
(Data Source – HighShortInterest/Google Finance)
Again, 40% of these companies are within the retail industry with most of the remaining being in similar industries. Put simply, retail, restaurants, and real estate are all struggling to survive.
In general, those with high short-interest have seen the best performance over the past three months as there is a very strong correlation between those two factors. This is a sign that there is a major short-squeeze in the stock market. Performance has been particularly strong over the past two weeks for these companies.
The Bottom Line
With stocks as high as they are today in the face of a very weak economic environment, it is logical that many investors are short-selling these companies. Most were struggling to survive for years and COVID-19 has caused sales to collapse at a very inopportune time. Many have deeply negative cash-flow, high debt, and will likely have suppressed sales until COVID-19 is no longer a factor (be it through a vaccine or a decline in social fear/regulations).
Most of these stocks have seen very strong performance over the past three months, but it is unlikely to last much longer. Still, short-interest remains high which means the squeeze could grow and quickly get out of hand. It may be best for short-sellers to limit position sizing or focus on less-crowded short opportunities.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in AMC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.