The technology-heavy Nasdaq Composite may be a long way off from its all-time highs set during the dot-com bubble, but that hasn’t stopped it from setting a fresh 12-year high on multiple occasions this year.
Like the rest of the market, the Nasdaq has benefited from a rapid return to growth that has been fueled by record low interest rates. Many tech companies have been able to take advantage of these rates by refinancing existing debt to a much lower interest rate (thus saving on their interest expenses) or by expanding their operations through acquisitions.
But just as we saw when the Nasdaq peaked more than a decade ago, not all investors are driving down the same road. Some traders view the Nasdaq and its components as overvalued and are building fairly sizable short interest positions in some of the Nasdaq components. With that in mind, let’s have a look at last month’s five most hated stocks within the Nasdaq Composite — in essence, the most short-sold companies — and see what characteristics, if any, they share so we can avoid buying into similar companies that have drawn the ire of short sellers in the future.
|Company||Short Interest as a % of Outstanding Shares|
|GT Advanced Technologies Inc (NASDAQ:GTAT)||43.07%|
|Sodastream International Ltd (NASDAQ:SODA)||38.02%|
|NII Holdings, Inc. (NASDAQ:NIHD)||37.42%|
|Ebix Inc (NASDAQ:EBIX)||37.33%|
Source: S&P Capital IQ.
GT Advanced Technologies
Why are investors shorting GT Advanced Technologies Inc (NASDAQ:GTAT)?
The thesis behind a pessimistic bet against GT Advanced Technologies Inc (NASDAQ:GTAT) hinges on the China solar sector vastly underperforming all other solar providers. GT Advanced Technologies, or GTAT for short, supplies equipment to solar and LED companies, primarily in China. With Chinese solar producers caring less about margins and choosing to pump out as much product as they can, they’re relying less on R&D and more on GTAT to innovate and keep their solar panels on par with other global manufacturers. Short sellers are anticipating that China’s solar industry will fall flat on its face, and GTAT with it.
Is this short interest deserved?
As much as I dislike the Chinese solar industry, there are so many players that even one or two bankruptcies wouldn’t have much of an effect on GTAT. With the Chinese government giving the go-ahead to its domestic solar industry that it plans to promote 35 GW of production by 2015, I’d certainly say that GTAT is going to remain busy — and should be profitable. With such a high level of short interest built up in the stock already, I’d surmise that short sellers should be mighty concerned here.
Source: DebMomOf3, Flickr.
Why are investors shorting Sodastream International Ltd (NASDAQ:SODA)?
Unlike GTAT, the reasoning behind the heavy short interest in Sodastream International Ltd (NASDAQ:SODA) doesn’t require investors to connect the dots. Very simply, investors are betting on a weak earnings report from the at-home soda machine maker. It’s not completely inconceivable that a bad report could surface, either, with the stock losing more than 50% of its value two summers ago on weak growth forecasts despite its rapid growth rate. Valuation has also been another big concern of short sellers, who have a hard time justifying the purchase of a company trading at 27 times trailing earnings.