In this article, we discuss the 5 most shorted stocks to watch in July. If you want to read our analysis of the US stock market, go directly to the 10 Most Shorted Stocks to Watch in July.
5. Frontier Group Holdings, Inc. (NASDAQ:ULCC)
Float Shorted: 41.85%
Number of Hedge Fund Holders: 24
Frontier Group Holdings, Inc. (NASDAQ:ULCC) is a Denver, Colorado-based operator of an ultra-low-cost airline.
The company is competing with JetBlue Airways Corporation (NASDAQ:JBLU) for the acquisition of Spirit Airlines, Inc. (NYSE:SAVE). Frontier Group Holdings, Inc. (NASDAQ:ULCC) stock is heavily shorted as investors anticipate the deal with Spirit Airlines to fall through. Furthermore, the ultra-low-cost airline is expected to come under pressure as rising inflation would strain the company’s margins moving forward.
As of July 12, Frontier Group Holdings, Inc. (NASDAQ:ULCC) has requested Spirit Airlines to delay the shareholder voting process regarding the takeover till July 27. If the request is approved, it would be the fourth time that the vote has been delayed in the last few months. Spirit Airlines had reached an agreement with Frontier Group Holdings, Inc. (NASDAQ:ULCC) in February 2022 until JetBlue came forward with its bid in April 2022, starting a bidding war.
Overall, 24 hedge funds held a stake in Frontier Group Holdings, Inc. (NASDAQ:ULCC) as of Q1 2022.
4. Heron Therapeutics, Inc. (NASDAQ:HRTX)
Float Shorted: 50.38%
Number of Hedge Fund Holders: 20
Heron Therapeutics, Inc. (NASDAQ:HRTX) is a San Diego, California-based commercial-stage biotech company producing therapies related to nausea and postsurgical analgesia.
On June 30, Heron Therapeutics, Inc. (NASDAQ:HRTX) initiated a cost reduction plan to address the changing market dynamics. The company will reduce its employee headcount by 34%. The restructuring plan will result in an annual savings of $43 million. The majority of the reduction in the employee headcount will come from the research and development (R&D) department, which is working on the label expansion for Zynrelef.
Zynrelef is a non-opioid painkiller launched by Heron Therapeutics, Inc. (NASDAQ:HRTX) in July 2021. The drug failed to garner sufficient commercial momentum and had a net revenue contribution of lower than even $1 million in the fourth quarter of 2021. Short-sellers are betting on the failure of the drug to become a growth driver for Heron Therapeutics, Inc. (NASDAQ:HRTX) in the future.
D E Shaw increased their holding in Heron Therapeutics, Inc. (NASDAQ:HRTX) by 51% during the first quarter of 2022.
3. Earthstone Energy, Inc. (NYSE:ESTE)
Float Shorted: 46.32%
Number of Hedge Fund Holders: 16
Earthstone Energy, Inc. (NYSE:ESTE) is a Denver, Colorado-based oil and gas exploration and production (E&P) company with a focus on the Midland Basin in the West Texas region and the Eagle Ford Trend in South Texas.
On July 6, Scott Hanold at RBC Capital downgraded Earthstone Energy, Inc. (NYSE:ESTE) stock from an Outperform to a Market Perform rating with a target price of $21. The analyst downgraded the stock due to the company’s relative valuation against the industry benchmark. Hanold highlighted that the management has been able to grow the company’s operations through multiple acquisitions in the last one-and-a-half year. However, some of these acquisitions have still not been fully integrated with the existing operations of Earthstone Energy, Inc. (NYSE:ESTE), which could result in rising costs in the short term during high inflation.
Earthstone Energy, Inc. (NYSE:ESTE) was held by 16 hedge funds at the end of Q1 2022.
2. Revlon, Inc. (NYSE:REV)
Float Shorted: 53.29%
Number of Hedge Fund Holders: 36
Revlon, Inc. (NYSE:REV) is a New York-based cosmetics, fragrance, personal care, and skincare company.
Revlon, Inc. (NYSE:REV) filed for bankruptcy on June 17 as the firm faced supply chain challenges that increased the cost of raw materials. The company had been in business for nearly nine decades but could not survive the impact of inflation and labor shortages. The bankruptcy filing will help Revlon, Inc. (NYSE:REV) in restructuring its capital structure and improve its long-term outlook. Revlon, Inc. (NYSE:REV) has filed for Chapter 11 bankruptcy which means it will not cease operations; instead, it will look for ways to make a comeback. However, the short-sellers are betting against the company’s recovery and think that Revlon, Inc. (NYSE:REV) is on the brink of completely wrapping up its operations.
Here’s what Mittleman Brothers Investment Management said about Revlon, Inc. (NYSE:REV) in its Q1 2022 investor letter:
“For Revlon, given very recent reports by analysts on the extent to which a slowdown in China, higher input costs, and rising interest rates might impact it, MIM provides additional commentary herewith to supplement the update in WWOAW. Revlon’s business is rebounding from the pandemic, despite its stock price continued insistence to the contrary. Sales were +9% in 2021 to $2.08B, adjusted EBITDA +22% to $293M (14.1% EBITDA) margin, gross margin improved to 59.4% from 57.1%. MIM sees the sales rebound accelerating in 2022, estimating +15% to $2.4B (the 2019 pre-pandemic level), and EBITDA at $350M (14.5% EBITDA margin) vs. 12-year average adjusted EBITDA margin of 16.5% (2008-2019) before COVID crushed 2020. The Revlon brand itself performed much better in Q4 2021 (consumption at retail) than the wholesale numbers they reported (Revlon’s sales to its customers, hindered by supply chain disruption) would imply…” (Click here to see the full text)
Of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 36 funds held a stake in Revlon, Inc. (NYSE:REV).
1. Redbox Entertainment Inc. (NASDAQ:RDBX)
Float Shorted: 93.47%
Number of Hedge Fund Holders: 5
Redbox Entertainment Inc. (NASDAQ:RDBX) is an Oakbrook Terrace, Illinois-based company that provides access to a large database of content through digital and physical media.
Redbox Entertainment Inc. (NASDAQ:RDBX) is in the middle of an acquisition by Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE) for an all-stock deal of $375 million. This includes the assumption of $325 million debt on the books of Redbox Entertainment Inc. (NASDAQ:RDBX).
Redbox Entertainment Inc. (NASDAQ:RDBX) is currently the most shorted stock as short sellers anticipate the deal to fail and the company to collapse under the burden of losses and high debt on its books. Redbox went public in October 2021 through a merger with a special purpose acquisition company (SPAC).
As of Q1 2022, only 5 hedge funds held a stake in Redbox Entertainment Inc. (NASDAQ:RDBX).
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