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Finance

4 of the Stock Market’s Most Heavily Shorted Stocks

The stock market has seen an excellent recovery from its COVID-19-pandemic-led March correction. All three major U.S. stock indexes are now hovering around all-time high levels. However, this rising tide has not lifted all boats. Investors’ bearish sentiments can often be expressed by their short-selling activity–their betting against stocks that they believe have become overvalued and are due for a pullback.

Short percentage of float is one of the most used metrics for understanding just how aggressive a stock’s short sellers have been. The short percentage of float is defined as the portion of a company’s total available shares for public trading (or floating shares) shorted by traders.

Virgin Galactic Holdings Inc. (SPCE), National Beverage Corp. (FIZZ), Ligand Pharmaceuticals Incorporated (LGND) and AMC Entertainment Holdings, Inc. (AMC) have been aggressively shorted by investors, which has raised red flags. But with steadily improving economic activity globally, along with short covering as short sellers move to buy the stock to cover their short positions, these stocks could see a spike in price.

Virgin Galactic Holdings Inc. (SPCE)

SPCE is a vertically integrated aerospace company that develops human spaceflight for private individuals and researchers in the United States. It is world’s first commercial spaceline and vertically integrated aerospace company, which with its sister company, The Spaceship Company, is developing and operating a new generation of space vehicles to open space travel to a wider market. SPECent public in October 2019 through a special purpose acquisition company called Social Capital Hedosophia. It is the only publicly traded commercial human spaceflight company.

The company’s stock price s up more than 120% year-to-date. Despite this rally, the stock’s short interest is 27.89% of the total share float. SPEC closed yesterday’s session at $25.47 and is currently trading 40% below its 52-week high of $42.49.

SPCE conducted a test flight for VSS Unity’s first human spaceflight on December 12. This flight carried revenue-generating payloads as part of the NASA flight opportunities program. During the test, a rocket motor did not fire, and the spaceship failed to reach space as planned. The rocket engine reportedly lost its connection with an onboard computer. Pilots executed a safe landing thereafter.

SPCE has generated zero revenue in the trailing two quarters and has posted a loss of $139.5 million in the same period. However, the company has successfully completed its initial Pilot Simulator evaluations of a second SpaceShipTwo vehicle in preparation for its expected rollout in the first quarter of 2021. It also completed work on Spaceport America’s third-floor astronaut training lounge and customer center during the third quarter. SPCE ended the quarter with cash and cash equivalents of $742 million, indicating a strong liquidity position.

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. The company is striving to make commercial spaceflight a reality. SPCE’s total future astronauts stood at approximately 600 as of October 31, 2020 In line with its progress in preparation for commercial launch, it plans to reopen ticket sales following Richard Branson’s flight in 2021. As a result, analysts expect SPCE’s revenue and EPS to rise 2,642% and 46.4%, respectively, next year. So, the stock could witness a short-covering rally.

National Beverage Corp. (FIZZ)

FIZZ develops, produces, markets, and sells a portfolio of sparkling waters, flavored juices, energy drinks, and carbonated soft drinks primarily in the United States and Canada. The company offers its products under well-known brands such as LaCroix, Everfresh, Faygo, and others.

FIZZ has gained 68.8% year-to-date. However, short interest in the stock represented 66.4% of its float, an indication that the stock has been heavily shorted. The stock’s momentum was negatively affected after the company reported a revenue miss for its fiscal second quarter ended October 31, 2020. FIZZ closed yesterday’s trading session at $86.12 and is currently trading 14% below its 52-week high of $100.22.

FIZZ’s revenue and EPS have grown at a CAGR of 4.9% and 8.8%, respectively, over the past three years. In its last reported quarter, the company generated revenue of $272 million, representing 8% year-over-year growth. However, the revenue came in below the consensus estimate, sparking a sell-off. Operating profit increased to 22.7% of sales, compared to the year-ago value of 16.6%. Moreover, EPS popped 44% year-over-year, reaching $1.01.

On November 24, FIZZ announced a $3 per share special dividend, which was later doubled to $6 per share on December 2 to commemorate FIZZ’s 30th anniversary  as a public company.

The exponential increase in at-home consumption amid the pandemic is off-setting pressures on its away-from-home channel sales. Hence, analysts estimate FIZZ’s current year revenue and EPS to rise 29.9% and 5.8%, respectively, year-over-year.

Ligand Pharmaceuticals Incorporated (LGND)

LGND is a biopharmaceutical company that focuses on developing therapies and acquiring technologies that help pharmaceutical companies to discover and develop medicines worldwide. The company’s commercial programs address the unmet medical needs of patients for a range of diseases, including hepatitis, multiple myeloma, Alzheimer’s disease, dyslipidemia, diabetes, and osteoporosis.

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LGND has lost more than 1% year-to-date and the stock has a short float of 65.83%. LGND closed yesterday’s trading session at $103.18 and is presently trading at a 19.3% discount to its 52-week high of $127.80.

LGND signed a collaboration and license agreement between its subsidiary, Icagen, and GlaxoSmithKline (GSK) on Monday, to leverage Icagen’s unique expertise in small molecule therapeutics targeting transmembrane proteins. One of the company’s partners, Sedor Pharmaceuticals, LLC, in November received FDA approval for Sesquient, a Captisol-enabled Fosphenytoin (fosphenytoin sodium for injection) for the treatment of status epilepticus in adult and pediatric patients.

Investors’ large short position in the stock could be related to its recent financial results. In the third quarter, LGND’s sales came in at $41.85 million, relatively flat to the prior quarter, and thereby missing consensus estimates. Captisol sales were $23.4 million, representing an increase due to higher sales of Captisol to support availability of Gilead’s (GILD) remdesivir as a treatment for patients with severe COVID-19. Moreover, LGND reported a loss of $0.42 per share, representing a significant decline from the previous quarter’s EPS of $1.32.

The stock’s short float also increased due to a recent report on CEO’s John Higgins overcompensation in comparison to average remuneration in the broader industry. However, LGND has nearly 25 approved drugs in its portfolio, while its partners currently have more than 100 drug candidates in discovery/pre-clinical development or for which an IND has been filed. Consequently, analysts expect LGND’s revenue and EPS to rise 69.5% and 55.4%, respectively, next year.

AMC Entertainment Holdings, Inc. (AMC)

AMC is the largest movie exhibition company in the world, with approximately 1,000 theatres and 11,000 screens around the globe. The COVID-19 pandemic has massively disrupted the industry. It has delayed promising film releases, slowed down production, and kept movie theater doors closed since March.

AMC has lost 64.2% year-to-date. The stock has declined more than 50% in the past three months to close at $2.59. Short selling   amounts to 31.43% of its float, which indicates that the stock is taking a dim view of its prospects.

AMC  recently secured a commitment to receive $100 million in cash in January 2021 from Mudrick Capital Management derived from  a new first lien debt financing transaction to improve its near-term liquidity. The company also officially launched Private Theatre Rentals at AMC last month, which are accessible through an automated booking and purchase system on its website and mobile app. The product launch generated a strong response, which resulted in 110,000 inquiries from around the country. During the third quarter ended September 30, 2020, AMC’s U.S. theatres began to re-open in August, following a five-month suspension of operations. The company reported a top-line of $119.5 million, representing a 91% decline from $1.32 billion a year ago.

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During the quarter, AMC had resumed operations at 467 domestic theatres with limited seating capacities of between 20% and 40%., However, its average attendance is still down 92.5% at approximately 4,022 screens, compared to the year-ago figure of 10,662 screens. The company reported a loss of $5.70 per share.

Despite the initiation of vaccine deployment, theatre traffic is seeing no improvement and the company is struggling to stay afloat. Some lenders are pushing the beleaguered company to declare bankruptcy as it will soon run out of cash if consumers do not return to theatres in short order and stay loyal to streaming platforms.

The bears have further taken over with the resurgence of COVID-19 cases, and the U.K. imposing fresh lockdowns to contain a new strain of COVID-19 that is spreading quickly. Nevertheless, analysts expect AMC’s revenue and EPS to rise 181% and 86.1%, respectively, next year.

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SPCE shares were trading at $26.82 per share on Wednesday afternoon, up $1.35 (+5.30%). Year-to-date, SPCE has gained 132.21%, versus a 16.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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