I find this very interesting but don’t understand it massively working for the NHS and not in finance.
I personally hold a small stake in IQE as a value/growth stock and according to SimplyWallStreets “company financials + 7 analysts” they are trading at 76.8% below fair value and earning are predicted to grow 90.84% per year. Babcock similarly are forecast to grow and are trading below fair value + attractive dividend.
Why then are they both most shorted stocks? Do they know something we don’t? Anyone have opinions or insight into this?
It could mean they know more, but it doesn’t have to. Just shows that many professionals think they are overvalued. Tesla was always a massively shorted stock, but always went up so proved short-sellers wrong.
What I do ask you though is why you blindly trust a tool like simplywallstreet that is just some people working there trying to analyse companies (probably automated based on some fundamentals)? Forecasts are generally never to be taken as more than a hint of where it could go.
And an objective ‘fair value’ does not exist. Anyone who claims a stock is over- or undervalued is just expressing a feeling, nothing actually objective or solid. If you believe in the strict efficient market hypothesis, (liquid) stocks are always valued as they should be.
@SebReitz thanks for the reply. But I wouldn’t say I blindly follow simplywallstreet. That is just a tool I use to help my research. I understand I am not an authority on understanding the markets and so use my common sense in the process.
Also the analyst who submitted the data work for many different institutions and are listed for each company you research. To my knowledge they are not robots.
Analyst performances are on average quite bad, so I would not care too much about it. A little thought experiment: If professional investors would actually believe it when an analyst writes that a stock is undervalued, they would buy it and push the price up to that level and the stock would not be undervalued anymore. So whenever an analyst writes that something is under- or overvalued, know that most professional market actors disagree.
If there is a large % of shares held as shorts, it’s always worth double checking your assumptions. It might be that large funds are anticipating a wider sector or even market sell off, or there may be something they believe about the specific stock.
Worth remembering that if the short goes wrong, the price will rise steeply quickly - a short squeeze
I would be using the annual report and audited accounts rather than a 3rd party tool in most cases - if anything smells fishy just walk away.
I always seem to find stocks more suitable for shorting than buying. I think it is because drops are over exaggerated. If only spread betting was still affordable to retail - those bloody EU bureaucrats
I just don’t have the spare money to cover the margin to make it worthwhile. I used to spreadbet with IG on fairly low margin but as a result of ESMA the margin has increased a fair bit depending on the asset type.