Short selling seems unsavory. It is betting that a company’s stock will drop, after all. However, many of the world’s top investors engage in this activity — George Soros, Paul Tudor Jones and John Paulson just to name a few. Short positions are required to be disclosed to the public. This is what gives us short interest. High-short interest stocks are stocks with a higher than usual amount of short interest.
When short interest is at high levels — say 20% or more of the float of a stock — then a good number of short sellers are expecting a stock to see downside…and a lot of it.
OK then, so what are some of the highest short-interest stocks? Here’s a look at 7:
High Short-Interest Stocks: Gogo (GOGO)
Short Interest: 74% of the Float
Gogo (NASDAQ:GOGO) is a developer of wireless internet services for airlines. During the past few years, the company has invested heavily in upgrading its system — to satellite transmissions — so as to provide a higher-quality experience for customers
But unfortunately, it has not done much to get the company back on track. A nagging issue is that in 2020 and 2022 large amounts of GOGO’s debt will come due. In the meantime, the company continues to post substantial losses. During the latest quarter, losses came to $27.4 million, which were at the very least up from $41.4 million in the year-ago quarter.
According to Northland Capital analyst Paul Penney: “GOGO is an open-heart surgery patient that requires more than a Band-Aid to reverse their deep-rooted … woes.” In other words, he thinks the company will need to do a capital raise, which would likely be dilutive as the market value is only about $315 million.
High Short-Interest Stocks: Frontier Communications (FTR)
Short Interest: 71%
I can’t remember the last time I owned a landline phone. Like millions of Americans, I just use my smartphone.
This is why Frontier Communications’s (NASDAQ:FTR) decision — a couple years ago — to shell out more than $10 billion to buy the wireline business of Verizon Communications (NYSE:VZ) has been a headscratcher. All in all, it’s turned out to be a major dud.
It also does not help that cord-cutting has become a secular change — which has eaten into FTR’s broadband cable business.
In light of all this, it should be no surprise that the financials for the company have been awful. During the past six months, revenues dropped from $4.66 billion to $4.36 billion and net income was a mere $2 million.
But the key problem is the continued erosion in the customer base. For the past six months, the base went from 5.058 million to 4.667 million. Basically, until the company can find ways to gin up the growth — which is a challenge because of the industry headwinds — it’s tough to come up with a bullish case for FTR right now.
High Short-Interest Stocks: Sears Holdings (SHLD)
Short Interest: 49%
Back in the 1970’s, the sales from Sears (NASDAQ:SHLD) accounted for 1% of America’s GDP and 3 out of 4 people shopped at the company’s stores. But of course, the company has since become a case study of what can go horribly wrong with a corporate icon. Nowadays, the only thing that is growing with the company’s business is the number of store closures!
Note that sales have declined for the past six years. In fact, during the most recent quarter, the top line dropped by 31% to $2.89 billion and same-store sales were off by 13%. In all, there are 894 locations.
For the most part, the strategy seems to be the gradual liquidation of the company — which is probably not a good thing for public shareholders. For example, Sears is now exploring unloading its Kenmore appliance business, Parts Direct and Sears Home Improvement.
High Short-Interest Stocks: Hertz (HTZ)
Short Interest: 44%
Hertz (NYSE:HTZ) continues to grow the top-line. During fiscal first quarter, revenues rose by 8%.
But short sellers still see downside. The main reason: the disruption in the car rental market.
Yes, it’s about highly-funded Silicon Valley startups like Uber, Lyft and Turo. They have revolutionized that transportation business by leveraging smartphones, cloud computing and big data.
Now HTZ has been trying to catch up. However, the process has been expensive and time consuming. According to a Wall Street Journal report, until this overhaul, many of Hertz’s technology systems were developed in the 1980s! Thus far, HTZ has spent a hefty $400 million in IT expenses to revamp its systems.
High Short-Interest Stocks: GNC (GNC)
Short Interest: 33%
GNC (NYSE:GNC) is a fairly well-run company and continues to generate decent EBITDA. But this really does not matter for Wall Street. No doubt, the main reason is the changes in consumer behavior, as people increasingly make their purchases online from companies Amazon.com (NASDAQ:AMZN).
Oh, and something else: There is a trend away from supplements. Instead, consumers are looking more to organic foods.
True, the company has been putting more resources in digital platforms and foreign markets. Actually, GNC recently snagged a $300 investment from a Chinese pharmaceutical company.
Yet these efforts will likely take time to get traction. For the most part, expect the retail business to remain a drag on the company’s operating results — GNC has a major retail footprint, over 8,000 locations — which is probably why short sellers are still interested in the stock.
High Short-Interest Stocks: Tesla (TSLA)
Short Interest: 32%
For years, Tesla (NASDAQ:TSLA) has been a target of short sellers. Also, this trade has been mostly a loser. But short sellers haven’t given up, as seen with the high short interest.
If anything, Tesla is at a critical juncture. The company is making a play for the mainstream market with its Model 3. While it has been a struggle, CEO Elon Musk has been able to boost production. He also predicts the company will reach profitability in the second half of this year. As a result, TSLA stock has soared — which has meant even more losses for short sellers.
But it’s important to note that Musk has had a dicey track record with his forecasts. So there is definitely hope here for short sellers.
High Short-Interest Stocks: Blue Apron (APRN)
Short Interest: 28%
Since pulling off its IPO a year ago, nothing has gone right for Blue Apron (NYSE:APRN), which is a provider of meal kits. Shares are off 82%! Yet it seems that short sellers are still betting that the worst is not over.
Just look at the recent earnings report. Revenues plunged by 25% to $179.6 million and the net loss came to $32.8 million or 17 cents a share. During this period, the customer base dropped by 24% to 717,000.
There are multiple reasons for the problems. First of all, the market has gotten saturated — not just with a spate of startups but also traditional operators like Kroger (NYSE:KR). Next, there are signs that the market could be a niche. More people may instead want to use a delivery service like GrubHub (NYSE:GRUB) or Uber Eats.
Then there are the complexities with logistics. Keep it mind that it can be very costly to provide weekly deliveries.
According to InvestorPlace’s Luke Lango:
“The unfortunate reality for APRN stock at this point in time is that the company is not investment-worthy. With the customer base in free-fall and huge competition headwinds on the horizon, it doesn’t really matter how much fat management cuts from the operating model. The longevity of this business in a very crowded space is a huge question mark.”
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.