Short selling data can help active investors manage risk. Short sellers tend to be sophisticated, high-conviction traders. If they’re targeting 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 home24 SE (H24:GR). home24 is a German online retailer that specializes in furniture and home accessories. The company is present in eight countries worldwide and currently has around 2.4 million active customers. It is listed on the Frankfurt Stock Exchange and currently has a market capitalization of €333 million.
home24: Short Selling Data
Our data shows that there has been a sharp increase in short interest here recently.
At the start of August 2021, five institutions had disclosed short positions on home24. In total, these five short sellers were shorting 1.141 million H24 shares, which equated to short interest of around 3.9%.
However, today, there are now seven institutions with disclosed short positions on home24. Those short are Arrowstreet Capital, WorldQuant, Marshall Wace, Marble Bar Asset Management, GSA Capital Partners, Otus Capital Management, and JP Morgan Asset Management.
Combined, these institutions are shorting 2.12 million shares worth €24 million, which represents short interest of 7.3%. This means that short interest has increased by 87% in around three months.
We see this significant increase in short interest as a red flag. It tells us that institutional sentiment towards home24 is quite bearish right now. It’s worth pointing out that a 2011 academic paper on short selling activity found that unusually large increases in short interest tend to be followed by a period of negative abnormal returns. The researchers concluded that informational content is associated with large spikes in short interest.
Why Are Short Sellers Targeting home24?
So, what is it that the short sellers are seeing here?
Well, one issue is that the retailer is facing higher costs. This is reflected in gross margins. For H1 2021, gross margin was 44%, down from 46% a year earlier. It’s worth noting that UK rival Made.com (MADE:LN) recently warned investors that it was suffering from higher shipping costs and supply chain disruptions.
Another issue is cash flow, which has deteriorated recently. For H1 2021, cash flow from operating activities was negative €48.5 million versus positive €11.8 million a year earlier.
A third issue is that the company is stepping up its investments to support growth. This is likely to hit margins going forward. In the first half of 2021, adjusted EBITDA margin was 1% compared to 3% a year earlier.
Whatever it is the short sellers are focusing on here, we think caution is warranted towards the stock right now. The high level of short interest suggests that institutions see downside risk ahead.