Short interest represents an important indicator that helps investors and analysts measure investor sentiment about a particular stock. “Short” shares are borrowed and sold in anticipation that the share price will fall before the amount of borrowed shares has to be purchased and returned to the party loaning those shares.
By default, short interest represents the total number of shares of a company’s stock that have been sold short but not yet covered. Hence, a low short interest ratio suggests that only a few investors anticipate the price of a company stock to decline. Paradoxically, a high short interest ratio may have a beneficial effect on a stock’s price as well. Imagine that the share price of a stock that has been heavily shorted begins to advance, which could cause short sellers to start panicking and begin buying shares to cover their shorts. This panic buying could take the stock price much higher. That said, the following article will look at five Nasdaq-listed stocks that registered a massive increase in short interest in the second half of June, as well as discuss the hedge fund sentiment towards each of these five stocks.
At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
#5. Etsy Inc. (NASDAQ:ETSY)
– Change in short interest in the period of June 15-June 30: +77.9%
– Investors with long positions as of March 31: 15
– Aggregate value of investors’ holdings as of March 31: $162.98 Million
Recent short interest data show a nearly 78% increase in short interest for Etsy Inc. (NASDAQ:ETSY) to 6.63 million shares, with the company’s short interest as a percentage of its float standing at 8.1% on June 30. In the first quarter of 2016, the number of hedge fund vehicles invested in Etsy increased to 15 from 13, while the overall value of those funds’ investments in the company rose by 43% quarter-over-quarter. The 15 hedge funds amassed almost 17% of Etsy’s total number of outstanding shares. The U.S. online crafts marketplace has seen the value of its stock gain 18% thus far in 2016, as the company posted its first quarterly profit since becoming a public company in late April 2015. Even so, Etsy investors seem to be concerned over the company’s slowing growth and difficulties to attract new sellers, which probably explains the high short interest. The marketplace of hand-crafted goods had 1.60 million active Etsy sellers at the end of March, up from 1.43 million recorded at the end of March 2015. Tiger Global Management LLC, founded by Chase Coleman, owned 11.09 million shares of Etsy Inc. (NASDAQ:ETSY) at the end of March.