BYD Company (OTCMKTS:BYDDY) began this year with some great news. Specifically, the Chinese electric vehicle (EV) producer reported better fourth-quarter deliveries than Tesla (NASDAQ:TSLA), demonstrating that it can do more than just compete with the sector leader — it can outshine it. That should have reassured Wall Street that BYDDY stock is a good buy as the EV market prepares to rebound in 2024. But according to recent reports, the opposite scenario is unfolding.
Instead, bearish sentiment seems to be spreading when it comes to BYD. Indeed, short sellers are upping their bets against BYDDY stock, creating enough negative momentum to push shares down.
Why are the bears closing in on a name that has reported impressive growth lately? And does this mean investors should approach BYDDY with caution? Let’s take a closer look.
What’s Happening With BYDDY Stock?
This week has been fairly volatile for BYDDY stock, despite its recent deliveries success. Indeed, BYDDY closed down 1.5% for the day. Still, even with this turbulence, BYD remains in the green for the past month.
As noted, this recent negative performance can be largely attributed to pressure from short sellers. Bets against BYDDY stock have reached their highest levels since September 2023. As Bloomberg reports:
“Short interest on the shares accounted for about 5.5% of the stock’s free float in Hong Kong as of Jan. 1, according to data from IHS Markit. The put-to-call ratio based on total open interest has climbed in the past month, suggesting growing pessimism among options traders even though the company delivered more EVs than Tesla Inc. last quarter.”
Why is this happening? Well, investors may be concerned about the company’s sales growth as well as increasing competition from other Chinese automakers. Andy Wong, Fund Manager at LW Asset Management Advisors, believes as much. Wong also cites “China’s challenging economic environment” as another factor hurting sentiment.
However, projections for BYD in 2024 aren’t too discouraging. According to Bloomberg, experts anticipate a 24% sales increase for the company this year. That’s not as high as the 60% rise BYD experienced last year, but it’s growth nonetheless. Additionally, Wall Street sentiment toward BYDDY stock is still generally positive. Over the past one month, analysts at Jeffries, J.P. Morgan and Macquarie have rated shares as a buy. BYDDY currently holds a strong buy consensus rating on TipRanks.
The Road Ahead
Even as bearish speculation toward BYDDY stock increases, it’s important to remember that Wall Street sentiment toward BYD remains more positive than negative. Additionally, while competition from other Chinese EV producers is increasing, BYD has already demonstrated an ability to hold its own against rivals both large and small. After all, Tesla is a more formidable competitor than companies like Nio (NYSE:NIO) and Li Auto (NASDAQ:LI), simply based on its size and resources.
As InvestorPlace contributor Will Ashworth reports:
“BYD sold 301,095 electric and hybrid vehicles in October, nearly 40% higher than a year earlier […] BYD sells one-third of all the new-energy vehicles in China. It passed Volkswagen […] as the number-one seller of autos in China for the first time in history.”
Short sellers shouldn’t take temporary turbulence as a real reason to bet against a strong company. With that in mind, BYD has a clear lead in the Chinese EV market and appears to have no intentions of bowing to the competition. If its sales growth can continue, BYDDY stock will likely keep trekking upward.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
