Short Selling

Short sellers increase downside bets on Boohoo

Boohoo Group PLC
(BOO:LN)
12 months:
-80.17%
Activity:
Bearish
Pattern:
Rising short interest
News:
Profit warning
Boohoo Group PLC
(BOO:LN)
12 months:
-80.17%
Activity:
Bearish
Pattern:
Rising short interest
News:
Profit warning
The image's background depicts a woman holding paper bags, with the blog introduction mentioning the 86.3M shares are on loan on top.

Short selling data can be a powerful investment tool. Short sellers are typically well-informed, high-conviction traders. So, when you track shorters’ activity, you’re following traders who are extremely confident in their investment theses.

In this report, we are going to look at the short selling data on Boohoo Group PLC (BOO:LN). Boohoo is a UK-based online fashion retailer. Its brands include Boohoo, BoohooMAN, PrettyLittleThing, Nasty Gal, Burton London, and Debenhams. The company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market cap of £501.9 million.

Boohoo: short selling data

Looking at the short selling data on Boohoo, we see several red flags.

The first is that short interest is relatively high. Currently, 86.3 million BOO shares are on loan. That represents roughly 9.3% of the free float. This makes Boohoo one of the most shorted stocks on the London Stock Exchange.

The second red flag is that short interest has spiked recently. In mid-September, less than 40 million Boohoo shares were on loan. So, short interest has more than doubled in just over a month. This tells us that short sellers have been ramping up their downside bets here recently, despite the fact that the stock has experienced a massive fall over the last year.

Why short sellers are targeting Boohoo

It’s easy to see why the short sellers are zooming in on Boohoo right now.

For a start, the company has released a number of profit warnings recently. Last month, it cut its full-year outlook, blaming deteriorating economic conditions, a weaker consumer, high cost inflation, and freight and logistics inflation. It now expects revenue for this financial year to be lower than revenue last year and EBITDA margins of between 3% and 5% (versus previous guidance of 4-7%).

As a result of the latest profit warning, the consensus earnings forecast for this year has fallen significantly. Analysts now expect the group to generate a loss of 1.1p per share for the year ending February 28, 2023. A month ago, the consensus forecast was for a profit of 1.2p per share.

Secondly, the company continues to face sustainability issues. Recently, it has been the subject of an investigation by the UK Competition and Markets Authority (CMA). This adds uncertainty.

Given the sharp rise in short interest recently, we think caution is warranted towards the stock. More often than not, sharp increases in short interest are followed by share price weakness.

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