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 look at the short selling data on CRISPR Therapeutics AG (CRSP:US). CRISPR is a Swiss gene editing company. The company, which uses CRISPR/Cas9 technology, is focused on developing transformative gene-based medicines for serious human diseases. It is listed on the NASDAQ Global Market and currently has a market capitalization of $4.94 billion.
CRISPR Therapeutics: Short Selling Data
Looking at the short selling data on CRISPR, we see a couple of red flags.
The first is that the number of shares on loan has risen substantially over the last four months. At the beginning of March, just 3.1 million CRISPR shares were on loan. However, today, the figure stands at 8.56 million. That represents an increase of nearly 180%. This tells us that short sellers have been ramping up their downside bets here. It’s worth noting that utilization – a measure of demand from short sellers – has risen from 18% to 42% over the period.
The second red flag is that short interest is now quite high. At present, the loan volume as a percentage of the free float is 12%. This indicates that plenty of institutional investors expect the stock to fall from current levels.
Why Are Short Sellers Targeting CRISPR Therapeutics?
As for why the short sellers are targeting CRISPR, it could be down to the company’s lack of profitability. This year, Wall Street expects the firm to post a net loss of $708 million. Meanwhile, next year, a net loss of $619 million is forecast. In the current environment, investors don’t have a lot of time for unprofitable companies.
It could also be down to the company’s pipeline. After the company hosted its ‘Innovation Day’ in June, the stock fell 8%. "There really wasn't much innovation forthcoming from the Innovation Day, in our view," commented Raymond James analyst Steve Seedhouse. Shortly after the Innovation Day, analysts at Oppenheimer cut their target price to $122 from $150.
Of course, it could simply be related to the company’s valuation. At present, the company has a market cap of nearly $5 billion. That seems high given that revenue in Q1 was just $940,000, and of that, $762,000 was grant revenue.
Whatever it is the short sellers are focused on here, we think caution is warranted towards the stock right now. The rising level of short interest is a bearish indicator, in our view.