Short selling data can help active investors manage risk. Short sellers tend to be very smart, high-conviction traders. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to analyze the short selling data on AppHarvest Inc (APPH:US). AppHarvest is a US agricultural company that is focused on building and operating high-tech greenhouses to grow fruit and vegetables. The company combines conventional agricultural techniques with cutting-edge technology with the aim of building a home-grown food supply, and increasing investment in Appalachia. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $727 million.
AppHarvest Inc: Short Selling Activity
Looking at the short selling data on AppHarvest, we see a number of red flags.
Firstly, short interest is very high. Currently, 14.9 million shares are on loan. That represents 24.58% of the company’s free float. This tells us that short sellers are aggressively targeting APPH stock right now.
Secondly, utilization rate is high at 93.56%. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. A high utilization rate tells us that demand for the stock from short sellers is elevated at present.
It’s worth noting that AppHarvest has a ‘Borrowing Activity Rating’ (BAR) of 10 on our terminal. BAR is a rating between one and 10 that provides a simple indication of the level of demand to borrow a given stock. The formula to calculate the BAR includes inputs from outstanding loan fees, new loan fees, new loan volume, and utilization rates. The rating of 10 here confirms that there’s a high demand to short the stock at the moment.
Turning to the short selling data from Nasdaq, we can see that short interest at AppHarvest has risen considerably this year. This is another red flag. Research has shown that large increases in short interest tend to be followed by underperformance.
Poor Q2 Results
AppHarvest’s recent second-quarter results, posted on 11 August, were poor. Q2 revenue was well short of estimates and full-year guidance was lowered significantly.
For the period, revenue came in at just $3.1 million. Analysts had been expecting $5.87 million. Meanwhile, the company posted a net loss of $32 million and a non-GAAP Adjusted EBITDA loss of $22.6 million, as compared to a net loss and non-GAAP Adjusted EBITDA loss of $1.6 million in the second quarter of 2020. The company blamed poor employee training and historically low tomato prices for the poor performance.
On the back of these results, AppHarvest lowered its full-year guidance dramatically. It now expects full-year revenue of just $7 million to $9 million, down from previous guidance of $20 million to $30 million. AppHarvest has already generated $5.4 million in revenue this year meaning that it may only generate $1 million to $2 million per quarter for the rest of the year. After this significant reduction in guidance, management will have lost some credibility.
Since these results, a number of legal firms have launched investigations into the company on behalf of shareholders in relation to potential violations of federal securities laws.
AppHarvest’s share price has already experienced a significant decline since the Q2 results. However, the short selling activity here suggests that short sellers expect to see further share price weakness. Given the high short interest here, we think caution is warranted towards the stock at present.