Short selling data can help investors avoid large losses. Short sellers tend to be high-conviction traders, and research has found that heavily-shorted stocks tend to underperform.
In this report, we are going to look at the short selling data on Arrival Group (ARVL:US). Arrival is a British electric vehicle (EV) manufacturer that went public last year via a SPAC deal. The group is currently developing a range of different commercial vehicles with the aim of manufacturing them in ‘Microfactories’ in order to keep costs low. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $2.6 billion.
Arrival Group: Short Selling Data
Looking at the short selling data on Arrival, we see a major red flag and that is that the number of shares on loan has risen significantly over the last month. If we go back to January 3, there were 25.6 million shares on loan. However, today, there are 40.4 million shares on loan. That represents an increase of nearly 60% in a month. This is concerning, in our view, as sharp rises in short interest tend to be followed by downward share price moves.
As for the level of short interest, this is now very high. At present, Arrival has a free float of 201.5 million shares. This means that approximately 20% of the free float is on loan currently. This indicates that many institutions are bearish on the stock.
It’s worth noting here that utilization – a measure of demand on the short side – has also spiked over the last month. On January 3, it was 42.3%. However, today, it is 94.6%. This tells us that short seller demand for the stock has risen substantially recently.
Why are short sellers targeting Arrival?
As for why the short sellers are ramping up their downside bets on Arrival, it could be down to a few issues.
For starters, it could be the company’s valuation. This year, the company is only expected to generate revenue of $50 million. This means that at the current $2.6 billion market cap, the forward-looking price-to-sales ratio here is about 52.
It could also be related to the fact that the sentiment towards unprofitable EV stocks is really deteriorating at the moment. Recently, a whole lot of smaller, unprofitable EV companies, including the likes of Rivian, Lucid, and Fisker, have seen their share prices plummet as investors have focused more on profitability.
Finally, it could be related to the fact that the company has had some operational issues recently. In the group’s third-quarter results, posted in November, it advised that it had “revised its Microfactory rollout” and that it now expects “significantly lower” vehicle volumes and revenue in 2022. Perhaps the short sellers envisage more production setbacks?
Whatever it is the short sellers are focusing on here, we think caution is warranted towards the stock. The sharp rise in the number of shares on loan indicates that short sellers expect the stock to fall.