A clutch of recent well-known initial public offerings have enjoyed
prolific starts to their stock market careers. But short sellers are not
so convinced the party will last.
Out of the U.S. IPOs over $100 million this year, Shake Shack Inc.
SHAK +7.12%, Etsy Inc.
ETSY +30.60% and Fitbit Inc.
FIT -1.28% are among the top 15 most expensive to short, a good proxy for demand by investors, according to data from Markit.
The share price of Shake Shack, the U.S. burger chain that listed in
early January, soared 119% on its first day of trading. The maker of the
ShackMeister Dog became an early target of short sellers. However its
share price remained strong into May and short sellers backed off a
little.
Now they are back. Since mid-May, Shake Shack’s stock has slumped
45%, however it is still up 23% from its listing price. At present, 3.6%
of its shares are on loan.
By comparison, the average stock out on loan in the S&P 500 (of which Shake Shack is not a component) is 2.5%, Markit says.
Of the major U.S. IPOs in 2015 Shake Shake is the most expensive firm
to short sell, according to a Markit report. At present, short sellers
are paying an annualized fee of 105% of the amount borrowed in order to
short the stock, it says.
Etsy, the Brooklyn, N.Y.-based online marketplace for handmade and vintage goods
that listed in early April,
has been a steady target for short sellers. While the IPO soared 88%
after a day of trading, it has since fallen 44% and is flirting around
its offer price of $16. In the days after the IPO, only 1% of shares were on loan. This has steadily risen to 8%, according to Markit.
Gil Luria, an analyst at Wedbush Securities LLC, currently has a
“sell” recommendation on Etsy. He thinks that Etsy is overpriced, and
that revenue and the margins will come down in part driven by
competition with Amazon Handmade, a rival service.
Another IPO that popped was wearable technology brand Fitbit. Listing
in June 17, the company rose 48% over its first day trading, and 80%
over its first week. It is currently up 139% from its offer price.
Analysts like the stock. Stifel Nicolaus, SunTrust Robinson Humphrey and Deutsche Bank AG have all
nailed on “buy” ratings on the San Francisco-based company. However, shares on loan have risen to 3.7%, up from 2% in the days after listing.
Jim Duffy, an analyst at Stifel, has a “buy” recommendation on
Fitbit. However, he says that part of the reason for the increase in
short-selling interest could be that share prices have risen too high
due to the short supply of growth venture companies and tech companies
coming to market.
Etsy and Shake Shack declined to comment. Fitbit did not reply for comment.
On
the heels of more weak economic data releases from the United States, a
legendary chairman & CEO overseeing more than $175 billion, who is
one of the most respected men in the financial world, issued a major
warning to the financial world.
Jeffrey Saut’s note regarding the carnage in the gold market:
Yesterday, however, I got some really interesting questions. One came
from a portfolio manager who wanted to know, “Have you heard any chatter
regarding margin calls within gold and or the gold miner sector?” Given
the carnage in the gold space, it is certainly a question to ponder. In
my view, gold entered a bear market in 2012, but the recent Gold
Gotcha’ began in earnest last June when the Chinese stock market lost
about one-third of its value.
