Short interest is a key metric investors should pay attention to. When short interest is particularly high, it’s often indicative of real problems at a company. Yet, highly shorted stocks can be prone to periodic, powerful rallies. When a highly shorted stock begins to move higher, short-sellers can be forced to cover their bets — buying stock and driving the price higher still.
While there is no shortage of excessively shorted tech stocks, a few in particular stand out. BlackBerry Ltd (NASDAQ:BBRY), 3D Systems Corporation (NYSE:DDD), and Trulia Inc (NYSE:TRLA) are all being heavily bet against.
BlackBerry’s BB10 failure
More than 30% of BlackBerry Ltd (NASDAQ:BBRY)’s shares have been sold short. The Canadian handset maker has been a favorite among short-sellers for years now, and those that have bet against it have been right. Over the last five years, BlackBerry shares have lost more than 90% of their value.
Given that its market share has eroded so significantly, BlackBerry Ltd (NASDAQ:BBRY) lacks a robust app ecosystem, because developers won’t waste their time coding for the platform. The disadvantage appears too significant for the company to overcome — its announcement that it will seek strategic alternatives, including a sale of the company, seems to indicate as much.
Should BlackBerry Ltd (NASDAQ:BBRY) be acquired, short-sellers will take a big hit. Yet, if that doesn’t happen, BlackBerry’s business should continue to decline.
3D Systems: Too much hype or the next big thing?
Unlike BlackBerry Ltd (NASDAQ:BBRY), 3D Systems Corporation (NYSE:DDD) isn’t a business in decline. Rather, it’s shorted because investors believe the company gets too much hype.
3D Systems Corporation (NYSE:DDD) is a play on the emerging technology of 3-D printing. As a leader in the industry, 3D Systems stands to benefit from the widespread adoption of the technology. In theory, 3-D printers have the potential to revolutionize everything — from manufacturing to food preparation to health care.
Short-sellers see the stock as overexposed. With a price-to-earnings ratio of about 116, roughly eight times the broader market, 3D Systems Corporation (NYSE:DDD) certainly isn’t a cheap stock from a value perspective.
William Blair analyst Brian Drab has been bearish on 3D Systems Corporation (NYSE:DDD) for months. In May, he downgraded the stock to underperform, and reiterated that rating in July. In an appearance on Bloomberg, he argued that investors had unrealistic expectations.
Drab characterized 3-D printing as a niche technology, suggesting that it was “ridiculous” to assume that 3-D printers would find their way into everyone’s home. While he described the technology as “fascinating,” he believed the recent rally in the stock was overdone.
Evidently, lots of investors agree — almost 30% of 3D Systems Corporation (NYSE:DDD)’ shares have been sold short. Yet, unlike BlackBerry Ltd (NASDAQ:BBRY), 3D Systems’ bears have been burned. Shares are up nearly 90% over the last year.
Trulia is a high-flying tech stock dependent on the real estate market
Trulia Inc (NYSE:TRLA), too, has had an impressive rally over the last year, though it hasn’t even been trading for a full 12 months. The website went public last September, and shares are up almost 70% since then.
Investors might be inclined to lump Trulia Inc (NYSE:TRLA) with other recent Internet IPOs like Facebook Inc (NASDAQ:FB) and Groupon Inc (NASDAQ:GRPN). But in reality, Trulia might be better thought of as a play on housing. Trulia exists as an online marketplace for buyers, sellers, renters and landlords.
