Short sellers bet against e-commerce and discretionary businesses over the past month, with online fashion retailer ASOS becoming the second-most shorted UK stock.
It did not appear on the top 10 list at all a month ago, but eight groups piled onto the company, bringing the total percentage of its shares out on loan to 7.2%.
ASOS’s share price has dropped 67.6% over the past year as sales dropped from their pandemic highs, when consumers were stuck in lockdown with expendable cash and therefore increased their online spending.
Share price of ASOS over the past year
Source: Google Finance
The company recorded a 104% operating loss of £4.4m over the most recent six-month period in its last interim report published in April.
Analysts at Jefferies recently scaled down their target price for the company from 4,050p to 2,440p as the cost-of-living crisis seems likely to reduce sales.
ASOS overtook fellow online retailer, Boohoo, to take second place. Although its position in the standings lowered, the amount of shares being shorted increased to 5.9% from 5.3% the month before as one more group bet against it.
However, ASOS’s recent entry to the FTSE 250 last week could “push it into the limelight” and give it a higher profile in the eyes of investors, according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The former darling of AIM moved over to the main market listing and joined the FTSE 250 in the latest reshuffle, giving its share price a significant boost as it’s roped into the investment criteria of index trackers.
Streeter said: “It still has lofty ambitions for growth and plans to increase sales from £3.9bn to £7bn over the next three to four years, and more than triple profit margins.
“But it’ll have to deal with plenty of headwinds before that, not least the cost-of-living squeeze, which is set to limit the amount its customers will be prepared to spend on fast fashion.”
While ASOS was promoted, Royal Mail dropped from the FTSE 100 in last week’s reshuffle due to a decline in parcel deliveries.
It was also a beneficiary of increased spending on e-commerce in the pandemic as it dealt with high volumes of home deliveries, but this has lowered substantially as Covid restrictions have lifted.
The number of short positions in the company jumped to 4.6% in the past month, with Marshall Wace taking up the biggest stake at 1.2%.
Royal Mail thrived when lockdowns restrictions were in place, with the share price up 116% between the start of 2020 and end of last year, but it has declined 48.6% in the past 12 months as demand has dwindled.
Share price of Royal Mail
Source: Google Finance
However, Streeter pointed out that the volume of parcel deliveries is still high that pre-pandemic levels. Likewise, she said that the millions of investments into automating its production line will help its efficiency in the long-term.
Concerns still remain, with Mark Crouch, an analyst at eToro, stating: “Realistically, the outlook for Royal Mail in the coming year looks uncertain at best, with the cost-of-living squeeze likely to result in lower consumer spending, which should have a negative knock-on effect on parcel volumes.”
Another victim of tighter consumer spending is Fever-Tree, a drinks company most famous for its premium tonic water.
Its share price dropped substantially at the start of the year, which may correlate with fears that the Omicron variant may have resulted in additional restrictions and fewer people going out to bars.
Share price of Fever-Tree over the past year
Source: Google Finance
Even though these concerns have faded, shares are down 42.2% over one year as rising inflation has lowered demand for discretionary products – with consumers winding in their spending, they are less likely to buy non-essential, luxury goods.
Short positions in the company increased to 5.2% over the past months, making it the seventh most shorted UK company.
Another drinks company, Naked Wines, remains on the list with 5.6% of shares being shorted by six firms.
Ashmore Group, the Emerging Markets investment manager, dropped from the top 10 list over the past month but the amount of short positions in the firm increased 0.4 percentage points to 4.5% overall.
Digital payment company, Network International, also left the most shorted list after short positions in the company halved from 4.3% down to 2.1% following reports of strong revenues in the first quarter.
Share price of Network International over the past year
Source: Google Finance
Its share price is still down 13.9% over the past month (dragging it down 44.4% in total over the past year), but the far fewer short positions suggest that brokers have more confidence in its future earnings.