Short selling insights can help active investors avoid losses. Short sellers tend to be well-informed, high-conviction traders. If they’re shorting a stock, there’s often risks to be aware of.
In this report, we are going to discuss the short selling data on Upstart Holdings Inc (UPST:US). Upstart is a FinTech company that offers an artificial intelligence-based lending platform. Using its platform, banks and credit unions can provide loans using non-traditional lending criteria. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $8 billion.
Upstart Holdings: Short Selling Data
Looking at short selling data on Upstart, we see a number of red flags.
The first is that short interest is very high. At present, 17.38 million Upstart shares are on loan. That represents approximately 35.35% of the free float.
The next red flag is that the number of shares on loan has risen significantly over the last two months. Back at the start of February, only 2.3 million shares were on loan. Since then, the figure has risen by around 600%.
Finally, the data shows that utilization – a measure of demand on the short side – is sky-high at 100%.
Together, this tells us that short sellers are aggressively targeting Upstart right now.
Why Are Short Sellers Targeting Upstart Holdings?
As for why short sellers are targeting Upstart, it’s hard to know for sure. After all, the company’s recent Q4 2021 results showed a 252% year on year increase in profit.
However, a recent note from brokerage Wedbush could offer some clues. It downgraded the stock from ‘neutral’ to ‘underperform’, and lowered its price target to $75, stating that weakening delinquency trends combined with macro and geopolitical risks could lead to waning appetite from Upstart’s credit buyers and the securitization market. It added that a major risk for Upstart was its reliance on third-party funding, which tends to become harder to obtain during recessions and market turmoil.
Insider selling here could also have prompted institutions to go short. Our data shows that over the last six months, Founder and CEO David Girouard has made some very large automated sales. Meanwhile, in November and December, 10% owner Third Point LLC reduced its stake significantly.
Whatever it is the short sellers are focusing on here, we think caution is warranted towards the stock at present. The high level of short interest indicates that short sellers expect the stock to fall.