Short Selling

Hedge funds increase their short bets on ASOS PLC

ASOS PLC
(ASC:LN)
12 months:
-77.13%
Activity:
Bearish
Pattern:
Rising short interest
News:
Final results
ASOS PLC
(ASC:LN)
12 months:
-77.13%
Activity:
Bearish
Pattern:
Rising short interest
News:
Final results

Short selling data can be a powerful risk management tool. Research shows that short sellers are skilled at processing information. It also shows that heavily-shorted stocks tend to underperform.

In this report, we are going to look at the short selling data on ASOS PLC (ASC:LN). ASOS is a UK-based online fashion retailer that operates in over 200 markets worldwide. It’s listed on the London Stock Exchange and currently has a market cap of £588 million.

Short interest at ASOS is rising

Looking at the short selling data on ASOS, two things stand out.

The first is that short interest is quite high. At present, 9.3 million ASOS shares are on loan, which equates to roughly 12.7% of the free float. This tells us that sentiment towards the stock is quite bearish right now.

The second thing that stands out here is that the number of shares on loan has increased significantly recently. In mid-August, only 3.6 million ASOS shares were on loan. So, in the space of a little over two months, the number of shares on loan has increased by 125%. This is concerning, as sharp increases in short interest tend to be followed by share price weakness.

Numerous challenges

Like many retailers, ASOS is facing a number of challenges right now.

For a start, it’s suffering from supply chain, logistics, and cost issues. These issues have hit profitability hard. Earlier this month, the group reported an 89% drop in adjusted pre-tax profit for the year ended August 31, 2022.

It’s also suffering from a weaker consumer. The demographic served by the company is under pressure from the cost-of-living squeeze, and this is impacting revenue growth. For the year ended August 31, revenue growth was just 1%.

Now, in its recent full-year results, ASOS announced plans to overhaul its business model in an effort to turn things around. The company said that it is looking to review and renew its customer acquisition model, supply chains, inventory management, data strategy, and capital allocation. This is a positive development.

However, the rising level of short interest here suggests that the short sellers believe that things are set to get worse before they get better.

Given the sharp spike in short interest, we think caution is warranted towards the stock right now.

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