Short selling data can be a very effective risk management tool. Short sellers are high-conviction traders. If they’re targeting a stock, there’s usually a good reason they are doing so.
In this report, we are going to look at the short selling data on easyJet PLC (EZJ:LN). EasyJet is a UK-based low-cost short-haul airline carrier that operates in more than 30 countries across Europe. The company is listed on the London Stock Exchange and currently has a market cap of £2.37 billion.
Short interest at easyJet is rising
Looking at the data on easyJet, we see a major red flag and that is that the number of shares on loan has spiked recently. In mid-September, just 7.0 million easyJet shares were on loan. Today, however, the figure stands at 21.1 million. That represents an increase of 186%.
A sharp rise in short interest is typically a bearish signal. Research has shown that unusually large increases in short interest are often followed by a period of negative abnormal returns. So, there could be downside risk here.
It’s worth noting that the number of shares on loan only represents about 3.7% of the free float. This is not particularly high. However, the trend is what’s concerning. The sharp increase indicates that short sellers have been ramping up their downside bets here.
Why short sellers are targeting easyJet
As for why the short sellers are increasing their shorts bets here, it could be something to do with the fact that easyJet CEO Johan Lundgren recently warned that the cost-of-living crisis across the UK and Europe is creating uncertainty. With high energy prices reducing consumers’ disposable income, demand for easyJet’s flights may drop off.
It could also be related to the fact that brokers have been lowering their earnings forecasts and price targets for easyJet recently. In the last month, the consensus earnings per share forecast for the year ending 30 September 2023 has fallen by 5.7p to 29.1p. Meanwhile, analysts at JP Morgan just lowered their price target to 260p, implying downside of nearly 20%.
Whatever it is the short sellers are looking at here, we think caution is warranted towards the stock. The rise in the short interest indicates that hedge funds expect the stock to fall.