Short interest refers to the percentage of publicly available shares that have been sold short. It is an indicator used by many investors to determine how strong a company’s bear thesis may be. Due to the nature of short selling, the short interest has become a popular indicator among investors.
The reason it is given so much weightage is that people betting against a stock have usually done solid research and are confident of a company’s downfall. They take unlimited risk, so when big investors or the smart money shorts a stock, people take notice. They try to unearth the red flags that may have prompted the high short interest.
We decided to dig deeper and try to find out where smart money sees trouble ahead. To come up with our list of 20 underperforming stocks targeted by short sellers, we looked at the worst-performing stocks of the last six months and then ranked them by the short interest.
20. PBF Energy Inc. (NYSE:PBF)
Short interest: 13.96%
6 months’ performance: -49.44%
PBF Energy Inc. refines and supplies petroleum products. It generates its revenues through the Logistics and Refining segments. The company produces ultra-low-sulfur diesel, diesel fuel, gasoline, heating oil, lubricants, jet fuel, and petrochemicals.
In the latest quarterly earnings announced last week, the firm recorded a net loss of $3.09 per share, a bigger loss than the $2.82 reported in the previous quarter. Cash flows took a double hit, first due to a $330 million working capital requirement and then due to a higher inventory resulting from refinery downtimes.
In 2025, the company anticipates operating costs to increase slightly to $7.20 per barrel. PBF Energy needs a crack spread of $10 per barrel to break even its free cash flow. However, as per the guidance, the company is unlikely to deliver profitability anytime soon. Due to the higher natural gas prices, the firm’s guidance targets may be at risk. The company is at the risk of facing additional challenges due to the further gas price rise driven by potential demand growth in 2025.
19. Choice Hotels International, Inc. (NYSE:CHH)
Short interest: 14.22%
6 months’ performance: -33.6%
Choice Hotels International, Inc. is a hotel franchisor. The company operates in two segments: Hotel Franchising & Management and Corporate & Other. It franchises lodging properties under the Comfort Suites, Sleep Inn, Econo Lodge, WoodSpring Suites, Comfort Inn, Radisson RED, and other brand names.
The firm reported strong Q4 results, beating management’s earnings guidance. Choice Hotels grew its net income by 16% and diluted EPS by 22%. Adjusted EBITDA set a new benchmark of growing 12% YoY. The leisure & business travel segment led a significant growth, with business travel accounting for 40% of the overall mix.
Despite solid earnings, the company’s 2025 outlook raises concerns. As per the guidance, projected net income for 2025 is $288-300MM with adjusted EBITDA ranging between $625-$640MM. However, achieving these targets is challenging due to the current economic uncertainty. Business travel growth may be impacted due to potential government layoffs and ongoing business uncertainty.
The company also offers the possibility for guests to earn airline miles, but the recent poor guidance by Delta Air Lines means these rewards are also unlikely to attract customers.
