5 Nasdaq Stocks with Ballooning Short Interest

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.

#4. INC Research Holdings Inc. (NASDAQ:INCR)

– Change in short interest in the period of June 15-June 30: +78.3%

– Investors with long positions as of March 31: 27

– Aggregate value of investors’ holdings as of March 31: $263.32 Million

There were 27 asset managers from our system with equity investments in INC Research Holdings Inc. (NASDAQ:INCR) at the end of the March quarter, as compared to 26 registered at the end of the December quarter. Despite the increase, the aggregate value of those equity investments fell by 9% quarter-on-quarter to 263.32 million. The 27 hedge funds accumulated roughly 12% of the company’s outstanding shares. The number of INCR shares short rose by 78% in the second half of June to 1.69 million shares, so let’s try to find out what might have spurred the bearish sentiment around the company. An article posted by Bloomberg in April said Laboratory Corp. of America Holdings (NYSE:LH) was interested in acquiring contract research organization INC Research in an attempt to strengthen its dominant position in the U.S. diagnostics industry, but the rumors have not materialized just yet. The lack of media scrutiny around a possible deal might have triggered the massive increase in short interest. INCR shares are 12% in the red year-to-date. Adage Capital Management, founded by Phillip Gross and Robert Atchinson, had 800,000 shares of INC Research Holdings Inc. (NASDAQ:INCR) among its holdings on March 31.

#3. Symantec Corporation (NASDAQ:SYMC)

– Change in short interest in the period of June 15-June 30: +94.5%

– Investors with long positions as of March 31: 33

– Aggregate value of investors’ holdings as of March 31: $835.80 Million

The number of shares short in Symantec Corporation (NASDAQ:SYMC) rose by 15.87 million during the second half of June to 32.66 million on the settlement date of June 30. Looking back at the first quarter of 2016, the number of money managers from our system with stakes in Symantec climbed to 33 from 29 quarter-on-quarter, while the overall value of those stakes increased by almost 13% quarter-over-quarter to $835.80 million. Symantec shares have gained 13% in the past three months, partially due to the announcement that the Norton antivirus software marker agreed to acquire privately held cyber security company Blue Coat Inc. for $4.65 billion in cash. Blue Coat’s current CEO, Greg Clark, will be appointed CEO of Symantec at closing. Some analysts believe the $4.65 billion price tag is somewhat expensive, as the figure represents 6.2-times fiscal 2016 non-GAAP sales, above the 5.5-times enterprise value/forward sales for the fast-growing software-as-a-service industry. Paul Singer’s Elliott Management was the owner of 11.53 million shares of Symantec Corporation (NASDAQ:SYMC) at the end of March.

#2. Red Rock Resorts Inc. (NASDAQ:RRR)

– Change in short interest in the period of June 15-June 30: +150.3%

– Investors with long positions as of March 31: no data

– Aggregate value of investors’ holdings as of March 31: no data

Red Rock Resorts Inc. (NASDAQ:RRR)’s short interest as a percentage of its float stood at 4.6% on June 30. Red Rock’s short interest skyrocketed by 1.14 million shares during the second half of June to 1.89 million shares. The Las Vegas casino and entertainment venue operator completed its initial public offering in May by offering 27.25 million Class A shares at an IPO price of $19.50 per share. A few weeks after its IPO, the newly public company that owns a significant indirect equity interest in Station Casinos LLC agreed to acquire the Palms Casino Resort for $312.5 million to bolster its Las Vegas presence. Freshly-acquired Palms features a 95,000-square-foot casino with roughly 1,250 slots and 48 table games, a race and sportsbook, approximately 710 hotel rooms, as well as 60,000 square-feet of meeting and convention space, among other things. RRR shares are currently trading 13% above its IPO price of $19.50 a share.

#1. United Community Banks Inc. (NASDAQ:UCBI)

– Change in short interest in the period of June 15-June 30: +178.6%

– Investors with long positions as of March 31: 15

– Aggregate value of investors’ holdings as of March 31: $227.63 Million

United Community Banks Inc. (NASDAQ:UCBI)’s short interest spiked by 1.49 million shares during the second half of June to nearly 2.32 million shares. As for the smart money sentiment, the number of hedge funds from our system with long positions in UCBI decreased to 15 from 18 quarter-over-quarter, while the aggregate value of those positions fell by 7% sequentially to $227.63 million. The 15 asset managers invested in UCBI hoarded up 17% of the company’s total number of outstanding shares. The bank holding company conducts most of its operations through its wholly-owned bank subsidiary, United Community Bank, which operates at 135 locations as of the end of the first quarter. In early July, UCBI completed its previously-announced acquisition of South Carolina-based Tidelands Bancshares Inc., whose legacy Tidelands Bank offices will operate as Tidelands Bank until November. At closing, Tidelands shareholders received cash equal to $0.52 per share. Israel Englander’s Millennium Management owns 2.06 million shares of United Community Banks Inc. (NASDAQ:UCBI) as of March 31.

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