Short interest data can help investors avoid losses. Short sellers tend to do their research – if they’re targeting a stock, there’s usually a very good reason they are doing so.
In this report, we are going to take a look at the short interest data on Earthstone Energy Inc (ESTE:US). Earthstone is an American energy company that is focused on developing and operating oil and gas assets located in the Midland Basin of west Texas and the Eagle Ford trend of south Texas. It is listed on the New York Stock Exchange and currently has a market cap of $1.43 billion.
Earthstone Energy: short interest data
Looking at the short interest data here, we see two things that concern us.
Firstly, there are a large number of shares on loan. At present, 13.93 million Earthstone shares are on loan, representing about 27.9% of the free float. This indicates that the short selling community has spotted a major risk here.
Secondly, the number of shares on loan has risen dramatically since mid-June. On June 15, 6.9 million shares were on loan. Today, however, the figure is over 100% higher. This sharp increase in short interest tells us that the short sellers have been aggressively ramping up their downside bets here recently.
Why are hedge funds shorting Earthstone Energy?
As for why the short sellers are targeting Earthstone Energy, it could be down to US President Joe Biden’s stance on the oil and gas industry. In mid-June (around the time short interest here spiked), Biden spoke at the Major Economies Forum (MEF), urging countries to speed up the adoption of renewable energy. This sent Earthstone’s share price down sharply.
It could also be related to an acquisition that was announced in late June. On June 28, Earthstone announced the acquisition of Titus Acquisition for approximately $627 million (consisting of $575 million in cash and approximately 3.9 million shares of Earthstone's Class A common stock). The issue here is that at the end of March, Earthstone had less than $1 million of cash on its balance sheet. So, this deal is going to increase debt significantly.
Losses could also be an issue for the short sellers. In its Q1 results, the company reported a net loss of $51.9 million or -$0.53 per adjusted diluted share.
Whatever it is the short sellers are focused on here, we think caution is warranted towards the stock. The high level of short interest indicates that there is downside risk.