Short Interest Soared in These Five NASDAQ Stocks in Late-May

Out of all the indicators and tools available to retail investors for gauging short-term price movements, short interest can easily be classified as one of the most reliable ones. The reason for that is fairly obvious. While most tools and indicators use price movements, which is erratic most of the times, short interest is calculated by using actual transaction data. If the stock of a company sees a notable increase in its short interest during a time period it basically means that the numbers of shares sold short by investors that haven’t been covered yet have increased, and hence, more people are betting on the price of the stock to decline. At Insider Monkey, we cover leading hedge funds and also keep a track on the notable movements in the market, which includes significant rise or fall in short interest. Having said that, in this post, we will take a look at five NASDAQ stocks that saw a marked increase in their short interest in the second-half of May (13-31) and will also discuss what the over 800 hedge funds tracked by us thought about these stocks heading into the second quarter.

Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

KPG Ivary/Shutterstock.com

#5 NetEase Inc (ADR) (NASDAQ:NTES)

– Increase in short interest in the period between May 13-May31: 42.5%

– Investors with long positions (as of March 31): 31

– Aggregate value of investors’ holdings (as of March 31): $2.27 billion

Let’s start with Chinese Internet company NetEase Inc (ADR) (NASDAQ:NTES), which saw the short interest in it rising to 3.3% of its float during the second-half of May. During the first quarter, the number of hedge funds covered by us long NetEase Inc (ADR) (NASDAQ:NTES) increased by six, but the aggregate value of their holdings in it dropped by $796 million. Notable investors that initiated a stake in the company during that period included Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which purchased 582,473 shares. Though the shares of NetEase have declined by  over 10% so far this year, most analysts have a favorable outlook on the stock going forward due to the consistent outperformance of the company on the financial front and the growth of its mobile gaming business. On May 12, analysts at Nomura upgraded the stock to a ‘Buy’ from ‘Neutral’ and also raised their price target on it to $194 from $174.

#4 Apple Inc. (NASDAQ:AAPL)

– Increase in short interest in the period between May 13-May31: 78.9%

– Investors with long positions (as of March 31): 152

– Aggregate value of investors’ holdings (as of March 31): $14.82 billion

Amid a 10% rise in Apple Inc. (NASDAQ:AAPL)’s stock during the second-half of May, the short interest in the company rose by 78.9% to 1.8% of its outstanding stock. The hardware behemoth saw its ownership among funds covered by us rising by 19 during the first quarter. However, the aggregate value of their holdings in it declined by $2.9 billion in that period. Funds that upped their stake in the company during the first quarter included Phill Gross and Robert Atchinson‘s Adage Capital Management, which brought its holding up by 5% to 8.46 million shares. The fiscal 2016 second quarter was the first time in the last 13 years that the company reported a year-over-year decline in its revenues, following which its stock fell drastically and despite the 10% rise in late-May still trades down by 15% year-to-date. The company kicked off its annual worldwide developers’ conference (WWDC) in San Francisco on June 13. A few analysts are of the opinion that if Apple Inc. fails to come up with some major announcement at this year’s WWDC, its stock can witness a sell-off in the coming weeks.

#3 Finish Line Inc (NASDAQ:FINL)

– Increase in short interest in the period between May 13-May31: 83.1%

– Investors with long positions (as of March 31): 16

– Aggregate value of investors’ holdings (as of March 31): $57.06 million

Moving on, the number of hedge funds covered by us long Finish Line Inc (NASDAQ:FINL) inched down by two and the aggregate value of their holdings in it fell by 42.8% during the first quarter. Notable investors that reduced their stake in the company during that period included billionaire Chuck Royce‘s Royce & Associates, which, despite lowering its holding in the company by 76% to 805,900 shares, remained the largest shareholder of Finish Line Inc (NASDAQ:FINL) among funds covered by us at the end of March. Shares of the athletic footwear retailer suffered a big drop in late-May and owing largely to it are currently trading down 3.88% year-to-date. The company is expected to report its fiscal 2017 first quarter numbers on June 24 and the consensus among analysts includes EPS of $0.22 on revenue of $451.40 million. For the same quarter of the previous financial year, Finish Line reported EPS of $0.30 on revenue of $443.39 million.

#2 Baidu Inc (ADR) (NASDAQ:BIDU)

– Increase in short interest in the period between May 13-May31: 84%

– Investors with long positions (as of March 31): 72

– Aggregate value of investors’ holdings (as of March 31): $4.82 billion

The stock of Chinese search giant Baidu Inc (ADR) (NASDAQ:BIDU) rose by over 13% during the second-half of may. However, traders weren’t expecting this rally to sustain itself and shorted the stock in droves, causing Baidu Inc (ADR) (NASDAQ:BIDU)’s short interest to jump by 84% to 3.3% of its float. The performance of the stock so far in June suggests that traders took the right call by shorting the stock during that period as the stock has fallen nearly 8% this month and currently trades down 14.5% year-to-date. On June 7, the company revealed that it led a $300 million investment in Bitauto Hldg Ltd (ADR) (NYSE:BITA), a content and marketing services provider for China’s automotive industry. The ownership of  Baidu among funds covered by us increased by 17 and the aggregate value of their holdings in it swelled by $631 million during the first quarter. However, there were also a few firms, including Steve Cohen‘s Point72 Asset Management, which became bearish on the company and sold their entire stakes during that period.

#1 Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH)

– Increase in short interest in the period between May 13-May31: 111.7%

– Investors with long positions (as of March 31): 13

– Aggregate value of investors’ holdings (as of March 31): $27.05 million

The short interest in Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) more than doubled to  a whopping 11.3% of its float during the second-half of May. Shares of the company saw a massive decline of 24% during that month and are currently trading down 36.24% year-to-date. On April 12, the company announced a secondary public offering of 5 million shares on behalf of selling shareholders, which analysts attribute as the main reason for the slump in the stock over the past two months. On May 24, Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) reported its fiscal 2016 first quarter numbers, declaring EPS of $0.27 on revenue of $212.70 million versus analysts’ projections of EPS of $0.25 on revenue of $206.79 million. During the first quarter, both the ownership of the company among funds covered by us and the aggregate value of their holdings in it remained largely unchanged.

Disclosure: None