These stocks are unloved and unwanted.
Most people make money on Wall Street by buying stocks, holding them for a bit, and selling them at a higher price. You can also do the opposite: Borrow and immediately sell a stock, then wait to buy it back at a lower price, and pocket the difference. That’s what it means to short a stock, and some investment professionals on Wall Street are quite fond of the practice. Not only do shorts help keep the bulls grounded in reality, they can serve as a warning sign when they converge upon one stock. What follows are seven of the most loathed stocks in the market, as measured by short interest.
Coty (ticker: COTY)
Beauty product-maker Coty ironically is a stock that’s considered rather unsightly by much of Wall Street: It’s the single-most shorted stock in the entire market. More than 54 percent of its float — or the number of outstanding shares once you subtract the number of closely held shares — is sold short. Despite several major, positive changes on the horizon — COTY is joining the Standard & Poor’s 500 index and will soon acquire more than 40 of Procter & Gamble’s (PG) beauty brands in a $12.5 billion deal — investors aren’t swayed. COTY has posted three consecutive years of falling revenue and trades at 50 times earnings, so some pessimism is understandable.
Vivint Solar (VSLR)
Solar energy is certainly a popular thing to hate on Wall Street right now, and for good reason: Many U.S. solar companies, like Vivint itself, are wildly unprofitable. In fiscal 2015, VSLR posted revenue of $64.2 million to go with an operating loss of $231.1 million. The capital-intensive solar installation business also saw cash reserves dwindle from $261.6 million in 2014 to $92.2 million in 2015, as long-term debt ballooned from $105 million to more than $415 million. With the company months removed from a CEO transition and rival SolarCity (SCTY) needing a corporate bailout from Tesla (TSLA) to survive, it’s no wonder nearly half of Vivint’s float is sold short.
Fitbit (FIT)
More than 52 million shares of Fitbit were spoken for by short sellers, September data show, equating to roughly 40 percent of the wearable fitness tracking company’s float. Next to companies like Coty and Vivint Solar, Fitbit’s inclusion on this list is a bit confusing: Fitbit is a fast-growing, profitable company that’s beaten both revenue and earnings estimates in all six of its quarters as a public company. FIT stock’s recent downgrade to “underweight” at the hands of Pacific Crest, citing a poor beginning to the holiday sales season, certainly won’t help sentiment, and shares of Fitbit plunged 10 percent on the day of the news.
Shake Shack (SHAK)
SHAK stock has looked bloated ever since its Wall Street debut in 2015. Long-term charts might fool one into believing a price in the $30s is a steal, especially after SHAK nearly reached $100 per share in mid-2015. But even after a brutal pullback, shares of the high-quality burger chain go for 60 times forward earnings — an insane multiple that’s more typically fetched by software firms than fast-casual joints. More than 7 million Shake Shack shares — or 38 percent of the float — were being shorted in September, making it one of the least popular stocks on the market. SHAK shares are getting grilled in 2016, losing some 14 percent to date.
Wayfair (W)
Wayfair is an up-and-comer in the online home furnishing retail market. Characterized by an easy-to-use interface and aggressive marketing techniques to retain and sell to existing customers, Wayfair is growing by leaps and bounds. In 2015, revenue surged 70 percent from the previous year, and sales are expected to jump another 52 percent this year. That said, the reason Wayfair stock is one of the most shorted on Wall Street is its consistent unprofitability — the company has never made money. Down the road, Wayfair should be able to lower its customer acquisition costs and build loyal, repeat customers, which ideally helps it turn profitable. Thirty-seven percent of the float is sold short.
Axovant Sciences (AXON)
It makes sense that this small-cap biotech might attract some skeptical investors — Axovant was taken public in 2015 by a 29-year-old hedge funder with no prior industry experience. The company doesn’t have any approved drugs on the market yet, and its lead product candidate is a Phase III Alzheimer’s drug, the rights to which it bought from GlaxoSmithKline (GSK) in 2014 for $5 million and future royalties. A bet on AXON is by default a bet against the expertise of GlaxoSmithKline, a $100 billion pharmaceutical company with more than 80 years of experience. Nearly 8.7 million shares of AXON are sold short, 28 times the stock’s average daily trading volume.
Lumber Liquidators (LL)
Hardwood flooring retailer Lumber Liquidators still hasn’t recovered from the 2015 “60 Minutes” segment that raised concerns over high levels of formaldehyde in certain China-made flooring that the company sold. Better-than-expected rulings from the Centers for Disease Control and Prevention and the U.S. Consumer Product Safety Commission are both net positives, but there’s still a multidistrict litigation, or combination of lawsuits, hanging over LL’s head. That legal uncertainty, combined with the fact that comparable store sales growth has been negative for 10 consecutive quarters, gives short sellers ample reason to sell 35.5 percent of the float short.
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7 of the Most Loathed Stocks in the Market originally appeared on usnews.com
