The Wall Street short selling parade is setting sights on the retail industry.
As noted by The Wall Street Journal on Monday (Feb. 22), the sector itself has been beset with overloaded holiday inventory, worries over global demand and, of course, the stock market that has been a roller coaster ride, which has had some spillover into stock prices.
One measure of where investor sentiment can be headed comes in the form of short interest, which gives a snapshot of how many shares are held by so-called short sellers. Simply, short sellers bet stocks will fall, with a process that involves borrowing the shares from true stockholders and buying them back at a cheaper price, pocketing the difference.
The common metric on The Street is known as short interest, which is the number of shares that are in short sellers’ hands, with that measured as a percentage of the float. WSJ reported that among retailers with the highest percentage of shares sold short as measured against total shares outstanding are Boot Barn Holdings and Mattress Firm, with 36 percent of shares sold short, followed by Abercrombie & Fitch at 32 percent. Those short interest numbers come from Citigroup, said WSJ. But, all told, only a few names — such as Target and Lululemon — are part of a vanguard of 10 names that have more than 50 percent of short selling activity.
But another metric, short interest days to cover, hints at even larger vulnerabilities, as stocks that have high percentages of the float sold short but do not trade much would likely see gaps down in trading on days where the stock market is choppy. Several retailers have days to cover in the teens (that is, for example, it would take, say, 15 days of trading volume to dislodge the shorts and begin to cover them).