If a stock has a high level of short interest, it can pay to approach the security with caution. Short sellers have usually done their research. If they’re shorting a stock, there’s often a very good reason they are doing so.
In this report, we are going to analyze the short interest data on Atos SE (ATO:FP). Atos is a French multinational information technology service and consulting company that specializes in digital transformation. It’s listed on the Euronext Paris stock exchange and currently has a market capitalization of €4.6 billion.
Atos: Short Selling Activity
The short selling data on Atos reveals that there has been a large spike in short interest recently.
At the start of the last week (12 July), just 1.41% of the total shares in issue (1.55 million shares worth approx. €80.6 million) were on loan with only two managers disclosing short positions. However, by 14 July, the number of shares on loan had doubled to over 3.3 million with the total value of shares on loan worth more than €140.3 million.
We can see that since the start of the last week, three new managers have crossed the 0.50% short interest threshold.
On 12 July, AKO Capital LLP disclosed that it had shorted 0.75% of the total shares in issue and then subsequently increased its position to 0.91% a day later. On 13 July, Schonfeld Strategic UK Master shorted 659,000 shares or 0.60% of the total shares in issue. Then, on 14 July, Worldquant LLC, a renowned hedge fund, shorted around 572,000 shares or 0.52% of the total shares in issue. After the recent increase in short interest, Atos is Worldquant’s second most shorted stock in terms of value at €23 million behind Carnival Corporation & PLC.
Not all managers are increasing their short positions. On 13 July, Steadfast Capital Management LLP disclosed that its position fell to just 0.18% from its previous position of 0.50%, which it took on 1 April 2021. The stock’s closing price on 1 April was €58.26. The New York based investment Manager has covered around 352,000 shares pocketing more than €5 million.
Atos shares fell 15% on 12 July after the company issued a profit warning. Atos said that due to "an acceleration of the decline in traditional infrastructure activities in the context of a stronger migration to the post-COVID cloud," its revenues for the year would be flat at constant exchange rates. Previously, it had forecast growth of 3% to 5%. It also said it was expecting an operating margin of around 6% for the year, versus previous guidance of 9.4% to 9.8%, and "positive" free cash flow compared to a previous forecast of €550 to €600 million.
It’s fair to say that analysts were unimpressed with the profit warning. One Paris-based analyst said that the guidance was a "massive" downgrade of the group's operating margin and cash flow targets. "The recovery of trust will take time," he added. Meanwhile, analysts at Midcap Partners said that the group's offer continues to be "inadequate."
The increase in short interest here suggests that institutions see further share price weakness ahead. Given the spike in short selling activity, we think caution is warranted towards Atos stock right now.