Short interest data can be a powerful investment tool. Short sellers tend to be well-informed, 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 interest data on STEM Inc (STEM:US). STEM is an American company that offers AI-driven clean energy solutions and services. Through its enterprise software platform, Athena, it aims to help engineering, procurement, and construction (EPC) firms and developers deploy and unlock the full potential of clean energy assets at scale. The company is listed on the New York Stock Exchange and currently has a market cap of around $1.10 billion.
High Short Interest
Looking at the short interest data on STEM, there are a couple of things that stand out.
One is that short interest is very high at present. Currently, 63.2 million shares are on loan, which represents about 43.2% of the free float.
Then, there’s the fact that the number of shares on loan has risen dramatically in recent months. Back in mid-March, there were only around 23.3 million shares on loan. Since then, the figure has risen by nearly 170%.
Overall, the short interest data is quite bearish as it signals that many hedge funds are shorting the stock at the moment.
Blue Orca Short Report
Earlier this year, STEM was the subject of a short report from Blue Orca Capital.
In its report, Blue Orca said that its extensive due diligence had revealed that:
STEM’s software business is a mirage, and that STEM is misleading investors by disguising service revenues from leasing hardware as software revenues.
STEM has deteriorating cash flows and payables.
STEM has misled investors with “bogus” non-GAAP operating metrics.
Blue Orca concluded that the market will come to value STEM as a low-margin hardware reseller and systems integrator that is “uninvestable” on account of undisclosed customer financing, accounting red flags, and misleading claims regarding its software revenues.
Since Blue Orca’s report, a number of lawsuits have been filed against the clean energy company.
Now, STEM did come out and say that Blue Orca’s report contained numerous errors and flawed conclusions.
However, the sharp increase in short interest here suggests that Blue Orca’s research could have merit.
Given the high level of short interest, we think caution is warranted towards the stock at present.
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