The Boohoo (LSE: BOO) share price has had an awful 2021. Following today’s trading update, it just got even worse. Now down 66% year-to-date, it’s hard to come across many people with a good thing to say about the former market darling. In fact, something’s come to my attention that suggests things might get even worse before they get better. 

Boohoo share price: attack of the shorters!

According to shortracker.co.uk, the number of short-sellers targeting Boohoo has increased significantly.

Short-selling (betting a share price will fall) is a risky business. While the gains from betting long on a stock are technically infinite, there’s always a limit to the extent these traders can profit. In other words, a share price can’t go below zero. This makes it important for any shorter to be extremely confident in their view that Boohoo will continue to struggle.  

At this point, it’s worth highlighting that the fast-fashion giant is far from being the most shorted stock on the UK market. That dubious accolade (justifiably) goes to heavily-indebted Cineworld. However, Boohoo is now 13th on the leaderboard, not far below battered FTSE 100 member International Consolidated Airlines.

Buy, sell, or hold?

As a shareholder, it goes without saying I haven’t enjoyed Boohoo’s recent form. The emergence of a significant minority of short-sellers is another headache. Having said this, I’m not intending to sell for a few reasons. 

First, Boohoo has survived such selling pressure before. Back in May 2020, hedge fund ShadowFall claimed the company was overstating its profits and cashflow. These allegations were quickly refuted and shareholders regained their composure.

Second, many online retailers are struggling right now. Industry rival, for example, ASOS continues to suffer. Lockdown beneficiary AO World has fared even worse. So it’s simply not the case that everyone else is getting richer while Boohoo’s owners suffer.

Third, if sentiment is already low, it takes just a bit of better-than-expected news to generate a ‘short squeeze’ where those betting against a company rush to close their positions. This can often put a rocket under a share price.

Lastly, I’ve made a point of being sufficiently diversified elsewhere not to make selling my holding at (possibly) the worst time even necessary. Successfully mitigating risk in tis way is key to staying in the investment game and applies to all my holdings.

No guarantees

Perhaps I’m just biased. There’s no rule to say the Boohoo share price won’t fall even further, especially after today’s statement.

While demand in the UK looks steady, overall net sales only rose 10%  in the three months to 30 November due to a much higher amount of clothes (particularly dresses) being returned. Performance abroad has also suffered from longer delivery times/higher costs. As a result, Boohoo is now guiding full-year net sales growth of between 12% and 14%. That’s a big reduction to the 20% to 25% previously expected.

Worrying as all this is, these numbers (and the presence of shorters) merely confirm what we already know: times are tough and this company is firmly out of favour. And, seen through a long-term lens, the best time to buy a company is often when things look bleak.

With its growing portfolio of brands, huge overseas growth potential, new distribution network and strong finances, I’m cautiously optimistic Boohoo will rise again.

Will I sell? No. Hold? Yes. Buy more? Possibly.

The post The Boohoo share price is under attack! Should I buy more, hold, or sell? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Before investing, I think it’s a good idea to check which companies are attracting the most interest from short-sellers. For newer readers of The Motley Fool UK, these are traders who place bets that the share prices of certain companies will fall. It’s risky stuff — the potential losses are limitless — so those that do it need to be very confident that they’re on to a good (or bad) thing. What’s interesting right now is that the most-bet-against stock is actually from the FTSE 100. 

Revealed – the most hated FTSE 100 stock

Supermarket giant J Sainsbury (LSE: SBRY) is currently attracting more short-selling interest than any other London-listed stock according to shorttracker.co.uk. To put this in perspective, second place goes to deeply-indebted cinema chain Cineworld.

At first glance, this looks strange. After all, the FTSE 100 member’s share price hasn’t done badly in recent months. Those investors who put Sainsbury’s in their shopping basket around the time that positive news on vaccines was announced would be sitting on a gain of around 40%. Even those who bought at the beginning of March would have seen their holdings rise 20% in value. 

So, why is this happening? There are a few potential reasons.

First, it’s possible that Sainsbury’s sales could be about to moderate. The great reopening of the UK reduces the need for shoppers to buy in bulk when they visit stores or place online orders. While the latter won’t fall off a cliff, the lifting of restrictions might play back into the hands of competitors such as Aldi that don’t offer such a service.

Second, Sainsbury’s CEO Simon Roberts recently reflected on how “a lot of uncertainty” following Brexit is impacting on the company’s operations in Northern Ireland. Since leaving the EU, some food products have struggled to make it to its 13 stores due to complex border requirements. This has only added to the FTSE 100 company’s costs. 

Another thing worth bearing in mind is that Sainsbury’s net debt is almost at the same level as its entire market capitalisation. Sure, the defensive nature of its industry means investors shouldn’t automatically panic. However, the last year has served as a useful reminder of the importance of having a resilient balance sheet. 

So, J Sainsbury could be about to tumble?

Near-term, it’s very hard to say what will happen. We can’t predict future share prices with any certainty. Nor can we know for sure whether the short interest will increase or decrease going forward. 

One thing to bear in mind, however, is the recent jump in the valuations of heavily shorted stocks in the US. Although the reasons for this will vary, it does show just how quickly a situation can reverse if there’s a short squeeze. For Sainsbury’s, a catalyst might be an earnings surprise. It next reports on trading in July. 

It’s also worth noting that ex-FTSE 100 member and industry peer Morrisons also features in the top 10 most-shorted stocks. This indicates that traders are pretty bearish on the sector as a whole.

Bottom line

As a growth investor, I’m not really interested in the grocery space. If I were looking to get involved though, my favourite pick remains market-leader Tesco. Interestingly, there’s barely any short interest in this FTSE 100 stock.

The post Wow! This FTSE 100 company is the UK’s most hated stock appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since the end of January, the AMC (NYSE:AMC) share price has been a hot topic among retail investors across the world. Subject to short squeeze deliberation triggered by the Gamestop saga, retail investors have been banding together against hedge fund short positions.

However, while many investors are hoping a short squeeze could send the AMC share price rocketing, I also like the look of this stock’s long-term position.

AMC short squeeze history

Firstly, let’s clear up exactly what a short squeeze is. In a nutshell, shorting a stock entails borrowing shares from a broker, betting their price will go down. These shares are then returned at the lower share price, and the difference is pocketed as profit. It is usually done by big hedge funds who take out multi-million short share positions.

However, if the price doesn’t go down, these hedge funds find themselves in big trouble. This is because short sellers exit their positions with buy orders. If these are executed at a higher price than they were borrowed for, share prices go through the roof.

In the case of AMC, things kicked off in late January soon after the Gamestop short squeeze. Retail investors quickly noticed 24% of AMC’s floated shares were held in short positions, so targeted it. By the time markets closed on 27 January over 1bn shares had been traded and the share price inflated over 300%!

There is speculation of another short squeeze as over 37.3m of the 490m floated shares are shorted. In addition to this, the AMC share price has been following an extremely bullish trend, up 42% in the past 30 days. This does point towards the possibility of another short squeeze.

AMC share price future

Though a short squeeze may drive up prices in the short run, there are also reasons why I am bullish on AMC’s long-term value. The cinema chain was decimated by Covid-19 closures, driving down revenues. However, the firm reported that as of March 2020, 527 out of its 589 US theatres were back open. This is great news as boosted capacity means revenues will start to increase again.

In Europe, however, only 27% of cinemas were reported open in the firm’s Q1 results. While this may seem bad in the short term, as Covid-19 restrictions ease across the continent, capacity will continue to grow, driving up revenues further.

CEO Adam Aron highlighted that bankruptcy was also now completely off the table, after raising over $917m of new equity and debt capital. This puts AMC in a strong financial position moving forward past the pandemic.

However, with the streaming industry growing at an accelerated rate, cinemas face stiff competition. Streaming subscriber numbers surged 34% in 2020, with a big part of this attributable to the pandemic. The industry is expected to keep growing by over 20% year-on-year, as companies like Netflix and Disney increase in popularity.

What I’m doing now

As a current investor in AMC, I’m trying to look past the short squeeze speculation. I prefer to invest looking at the long-term value of a stock. I like the outlook for AMC as the cinema is finally opening its doors to customers again. The fact bankruptcy is out of the picture now is a plus too. Therefore, I will be holding for the long term.

The post Why I’m looking beyond the short-term AMC share price appeared first on The Twelfth Magpie.

More reading

• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year

Dylan Hood owns shares in AMC Entertainment Holdings. The Motley Fool UK owns shares of and has recommended Netflix and Walt Disney. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s not hard to see why this real estate investment trust is so despised. With retail sales still sluggish as a recession bites, the owner of sites such as Highcross in Leicester and Victoria in Leeds is feeling the pain.

A few weeks ago, the firm revealed that just 41% of rent had been collected over its fourth quarter. This was lower than the 59% collected for Q3. It’s also a world away from the 97% achieved in Q1.

The longer the pandemic persists, the more pressure this puts on Hammerson’s balance sheet. Can another cash call be far away?

More hated than Hammerson

Trading at 20p a pop, shares in Hammerson look like a classic value trap. Even if ‘bricks and mortar’ retail is able to recover after the coronavirus subsides, the huge growth in online shopping shows no signs of abating. Factor-in recent management issues and the mid-cap looks to me to be more trouble than it’s worth.

Having said this, two FTSE 100 stocks — educational products and services provider Pearson (LSE: PSON) and supermarket Sainsbury (LSE: SRBY) have even bigger short positions.

Have the valuations of these top-table titans dropped far enough to now make them bargains for patient Foolish investors? 

Uncertain outlook

Pearson was a favourite with the shorting community long before the coronavirus arrived. Even now, it’s still the sixth most hated stock on the market according to shorttracker.co.uk. That seems fair based on recent trading.

Earlier in October, the self-styled ‘world’s learning company’ said that sales had declined by 14% over the first nine months of 2020 due to the closure of test centres and schools. Revenue in the UK was particularly hard hit by the cancellation of exams.

With “larger than usual uncertainties” likely to be felt in Q4, Pearson could only say that trading for the rest of 2020 would be “broadly in line with market expectations“. That’s hardly bullish. However, one could argue this is already priced-in.

Shares in Pearson currently trade on a little less than 13 times forecast FY21 earnings. That could make it a decent contrarian buy, especially as the FTSE 100 company said that online learning sales had helped to soften the blow from the pandemic. I’d certainly be more bullish on Pearson than I would on Hammerson.

Cheap for a reason

You might expect the UK’s second-biggest supermarket to be in something of a purple patch. After all, the coronavirus confined us to our homes earlier in the year. There’s a possibility of it doing the same again before 2020 ends. 

It would seem traders don’t agree. At the time of writing, Sainsbury is the eighth-most shorted stock on the market.

A forecast price-to-earnings (P/E) ratio of just under 11 suggests the shares are a bargain but I’m not so sure. As well as having to cope with competition from the German discounters and the Ocado/M&S tie-up, there’s a truckload of debt on the balance sheet. Margins are wafer-thin too.

Even if/when a vaccine to Covid-19 is found, I can’t see Sainsbury bouncing back to the same extent as other stocks. With dividends on hold, I’d steer clear.

The post These FTSE 100 shares are more hated than Hammerson. Are they too cheap for me to ignore? appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Now, the hedge funds don’t always get it right. Not every heavily shorted stock falls in value. Yet quite often, these sophisticated investors do get it right. Just look at some of the FTSE companies that have been shorted heavily by the hedge funds in recent years – Carillion, Thomas Cook, Debenhams… all of these companies turned out to be shocking investments.

With that in mind, today I want to highlight two FTSE 250 stocks that are being heavily shorted right now. Given the high level of short interest here, I’d steer well clear of these companies.

Hedge funds smell blood here

According to shorttracker.co.uk, the most-shorted stock on the London Stock Exchange is currently FTSE 250 real estate investment trust Hammerson (LSE: HMSO). It has short interest of 12.6%, with nine funds shorting it.

It’s not hard to see why the hedge funds don’t like this stock. Hammerson owns and operates a number of prime shopping centres in the UK and Europe. Its portfolio currently contains 21 flagship destinations, eight retail parks, and 20 premium outlets. There are two issues here. Firstly, the forced closure of non-essential retail stores has devastated rent collections. Last week, Hammerson advised that it had collected just 16% of rents in the UK in the last quarter. Secondly, the coronavirus lockdown has changed the way we shop. Going forward, a lot more of our shopping will be done online. That could impact the company’s operating environment in the future.

Hammerson recently negotiated some headroom with its creditors until 31 December 2021. It also advised that it is confident that rent collection rates will improve materially in the near term. I’d still avoid the FTSE 250 stock though. The hedge funds clearly smell blood here.

A FTSE 250 company seeing major challenges

Another FTSE 250 stock that is being heavily shorted right now is Royal Mail (LSE: RMG). It’s currently the third most shorted stock on the London Stock Exchange according to shorttracker.co.uk. It has short interest of 9.1% with seven funds short.

Again, it’s not hard to see why the hedge funds don’t like this FTSE 250 stock either. This a company with some serious challenges to work through.

In its recent full-year results, issued on 25 June, Royal Mail provided two potential scenarios of how the business could perform in 2020-21. In the first scenario, which assumed a UK GDP decline of 10% for the period, it said revenue from its UK operations could be between £200m to £250m lower year-on-year. Meanwhile, in the second scenario, which assumed a UK GDP decline of 15%, it said UK revenue could be between £500m to £600m lower year-on-year. The company also said that it expects its UK division to be “materially loss-making” in 2020-21.

Royal Mail is a stock I’ve been bearish on for a while now. The high level of short interest here just reinforces my view. I’d steer well clear of this FTSE 250 share and look for more attractive investment opportunities.

The post FTSE 250: I’d avoid these shares because hedge funds expect them to fall appeared first on The Twelfth Magpie.

More reading

• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.