Short selling data can be a very useful risk management tool. Short sellers tend to be sophisticated, 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 highlight some bearish short selling activity at Encavis AG (ECV:GR). Encavis is a German renewable energy company that acquires and operates solar and wind parks across Europe. The company was established in 2017 following the merger of Capital Stage AG and CHORUS Clean Energy AG. It is listed on Deutsche Börse’s Xetra and currently has a market capitalization of €2.1 billion.
Encavis AG: Short Selling Activity
Short selling data shows that Encavis has a very high level of short interest at present. Data from Bundesanzeiger reveals that currently, seven institutions are shorting the stock. Those short include Citadel Europe, Heikon Investments, HBK Investments, and Sculptor Capital Management. The total short interest is a high 13.38%, making Encavis one of the most shorted stocks on the German market.
Insiders Have Been Buying Stock
This short selling activity is interesting because recently, we have seen some high-conviction purchases from insiders at Encavis. Between 6 April and 21 April, for example, two members of Encavis’ Supervisory Board, Dr. Cornelius Liedtke and Albert Buell, spent €6.3 million on stock. Mr. Buell then spent another €3 million on Encavis stock between early May and early June. Clearly, these insiders are confident that the stock is set to move higher – the opposite view of the short sellers.
Who is Right?
In terms of who is right about Encavis stock, that’s hard to know at this stage.
Recent news shows that the company continues to make progress. In mid-May, for example, the group advised that it continues to grow as planned and said that it increased its own power generation capacity by more than 40% to 1.8 gigawatts (GW) in Q1 2021 compared to the same period of the previous year (1.3 GW). The Management Board confirmed the guidance for the full 2021 year, provided in March this year, as well as the growth strategy ‘Fast Forward 2025.’
However, the group’s first-quarter results were not brilliant. For the period, revenue was down roughly 10% year on year to €58.9 million on the back of lower levels of wind. Meanwhile, operating EBITDA was €39.3 million for the quarter versus €50.6 million in Q1 2020. Since these results, the stock has struggled to gain any momentum.
It’s worth noting that Encavis stock trades at a high valuation, even after a recent pullback. At present, the stock has a trailing price-to-earnings ratio of 35 and a trailing price-to-sales ratio of 7.2. This high valuation possibly explains the high level of interest from short sellers. At that valuation, the stock is priced for perfection.