In a healthy market, stocks move both up and down. Traders who speculate that a stock will go down in price are said to be shorting that stock. And the number of shares being sold short is expressed as a percentage known as short interest.
To understand why short interest is significant, you should remember that traders who short a stock sell it first with the expectation that the price will fall so they can repurchase the stock at a lower price.
If you're an investor, you can view a stock with high short interest in one of two ways. Sometimes, a stock is objectively overvalued. However, if the company has strong fundamentals and your buying thesis hasn't changed, a stock with high short interest can be a buying opportunity.
But the opposite is also true. There are times when high short interest exists because the company is not fundamentally sound. In this case, seeing a stock with high short interest may be a reason for you to sell a stock.
In this special presentation, we're analyzing seven stocks with high short interest and providing insights as to whether the market is getting them right. All the short interest percentages are as of March 31, 2024.
Quick Links
- Upstart
- Medical Properties Trust
- TG Therapeutics
- Kohl’s
- SoFi Technologies
- Rivian Automotive
- Choice Hotels International
#1 - Upstart (NASDAQ:UPST)
The first stock on this list is Upstart Holdings Inc. (NASDAQ: UPST), which has a whopping 36.9% of its shares being sold short. The company is part of the fintech sector and sparked investor interest for its use of artificial intelligence (AI) in its lending decisions. This allows the company to approve applicants for their "future credit score" based on variables such as the school they received their degree from and career prospects in addition to traditional variables.
Not surprisingly, UPST stock shot higher in 2023 as part of the AI revolution and is up 55% in the last 12 months. However, the company's revenue and earnings have been falling year-over-year, and earnings have turned negative for the last four quarters as the company is finding it more difficult to qualify lenders even using its AI model. They're also finding that fewer consumers are looking to take out a personal loan.
Short sellers could be wrong if the Federal Reserve lowers interest rates. But even if they do, there will likely be a lag effect before that shows up on Upstart's bottom line.
About Upstart
Upstart Holdings, Inc, together with its subsidiaries, operates a cloud-based artificial intelligence (AI) lending platform in the United States. Its platform includes personal loans, automotive retail and refinance loans, home equity lines of credit, and small dollar loans that connects consumer demand for loans to its to bank and credit unions.
Read More - Current Price
- $70.40
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $46.83 (33.5% Downside)
#2 - Medical Properties Trust (NYSE:MPW)
Medical Properties Trust Inc. (NYSE: MPW) has over 35% short interest as of the end of March. The company has one reason to believe short sellers are right and one reason to think they may be getting this stock wrong.
Medical Properties Trust is a real estate investment trust (REIT) that, as its name suggests, specializes in properties tied to healthcare, such as long-term acute care hospitals and rehabilitation hospitals. That speaks to the fact that America has an aging population that is only going to need more care, not less.
On the other hand, the company operates in the commercial real estate sector, which is under pressure as companies such as Medical Properties Trust have to raise the rent they charge to tenants.
However, the company recently sold its majority position in five properties in Utah, and it's using the $1.1 billion it will receive to pay down its debt. Long-term investors should watch this one closely.
About Medical Properties Trust
Medical Properties Trust, Inc is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities. From its inception in Birmingham, Alabama, the Company has grown to become one of the world's largest owners of hospital real estate with 441 facilities and approximately 44,000 licensed beds as of September 30, 2023.
Read More - Current Price
- $4.26
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $5.50 (29.1% Upside)
#3 - TG Therapeutics (NASDAQ:TGTX)
Biotechnology stocks are among the most heavily shorted stocks. And TG Therapeutics Inc. (NASDAQ: TGTX) is an example of that. As of March 31, 2024, TGTX stock has 24.7% of its float sold short.
TG Therapeutics develops and commercializes treatments for multiple sclerosis (MS) and other autoimmune diseases. TG Therapeutics launched its MS drug, BRIUMVI, in January 2023 and is generating significant revenue as a result. The drug has a wide moat, meaning there is a hard barrier to entry for other companies. And it enjoys patent protection on BRIUMVI for a considerable time.
The price action in TGTX stock has been crazy in both directions in the past year. And with heavy short interest, that will be tough for retail investors to overcome. However, institutional investors are starting to come back into the stock, which could mean that the stock's 15% slump to start the year may be ready to reverse.
About TG Therapeutics
TG Therapeutics, Inc, a commercial stage biopharmaceutical company, focuses on the acquisition, development, and commercialization of novel treatments for B-cell mediated diseases in the United States and internationally. It provides BRIUMVI, an anti-CD20 monoclonal antibody for the treatment of adult patients with relapsing forms of multiple sclerosis (RMS), including clinically isolated syndrome, relapsing-remitting disease, and active secondary progressive disease in adults.
Read More - Current Price
- $31.15
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $37.67 (20.9% Upside)
#4 - Kohl’s (NYSE:KSS)
Next up with 27.6% short interest is Kohl's Corporation (NYSE: KSS). The issue for Kohl's has been inventory management, which has impacted the company's profitability. Those issues appear to be behind them, and the company is posting improved margins.
And as of this writing, March retail sales showed that the consumer continues to spend. Kohl's has a loyal customer base that could put the company in a good position to capture increased market share.
Another reason that investors may be interested in Kohl's is that the dividend currently yields over 8%. However, dividend yields are impacted by a stock's price. And in this case, the yield is high because the stock price is down 21.5% in 2024.
Another thing for investors to consider is that Kohl's has been targeted by companies looking to snatch up distressed retailers. Kohl's blocked those attempts in 2022, but with the company looking undervalued, interest could continue.
About Kohl's
Kohl's Corporation operates as an omnichannel retailer in the United States. It offers branded apparel, footwear, accessories, beauty, and home products through its stores and website. The company provides its products primarily under the brand names of Croft & Barrow, Jumping Beans, SO, Sonoma Goods for Life, and Tek Gear, as well as Food Network, LC Lauren Conrad, Nine West, and Simply Vera Vera Wang.
Read More - Current Price
- $16.32
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $20.43 (25.2% Upside)
#5 - SoFi Technologies (NASDAQ:SOFI)
SoFi Technologies Inc. (NASDAQ: SOFI) is perpetually on a list of stocks being sold short. The company's current short interest is at 19%. The company is one of the leading fintech companies and came to national prominence because of its dominance in the student loan market. That's been one headwind for the company as loan repayments were paused in 2020. Now, there's concern over the Biden administration's machinations to have student loan debt forgiven for millions of borrowers.
On the other hand, SoFi got its banking charter in 2022, and the company continues to grow its customer base. Plus, the company just posted its first profitable quarter.
Still, short interest remains high, and analysts are concerned about the company's portfolio of personal loans, which has expanded sharply since 2022. Nevertheless, SoFI is at the forefront of a changing banking industry and has access to the coveted Gen-Z demographic that is leading that transition.
About SoFi Technologies
SoFi Technologies, Inc provides various financial services in the United States, Latin America, and Canada. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending and financial services and products that allows its members to borrow, save, spend, invest, and protect money.
Read More - Current Price
- $14.67
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $9.80 (33.2% Downside)
#6 - Rivian Automotive (NASDAQ:RIVN)
It's been a rough 18 months for the electric vehicle (EV) industry. And Rivan Automotive Inc. (NASDAQ: RIVN) is no exception. Short interest on RIVN stock is at 18.3% and the stock is down 31.76% in the last 12 months and over 60% in 2024.
The good news is that Rivian is making cars, and its revenue is increasing. However, the company is not profitable to date, and even though it is accelerating its timeline for the production of its next vehicle, the company is saying production will be flat in 2024 compared to 2023. Nevertheless, it hopes that a plant retooling and new deals with suppliers will lead to profitability in 2024.
That may be a difficult needle for the company to thread, and analysts are cautiously approaching RIVN stock. The EV market is likely to grow significantly in the coming years, but there is also expected to be consolidation. Investors should consider that.
About Rivian Automotive
Rivian Automotive, Inc, together with its subsidiaries, designs, develops, manufactures, and sells electric vehicles and accessories. The company offers consumer vehicles, including a two-row, five-passenger pickup truck under the R1T brand, a three-row, seven-passenger sport utility vehicle under the R1S name.
Read More - Current Price
- $10.05
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $15.73 (56.5% Upside)
#7 - Choice Hotels International (NYSE:CHH)
Choice Hotels International (NYSE: CHH) has a short interest rate of 17.6%, and that short interest has been increasing for the past two quarters. That may seem odd since consumers continue to spend money on travel and travel-related expenses, such as hotels.
But the growth in Choice Hotels appears to be waning. The company has missed on revenue and earnings in the last two quarters. However, CHH stock is up 7.8% in 2024, and the company expects to grow earnings over 7% in the next 12 months.
This discrepancy could be a case of investors being ahead of analysts. The bullish case for Choice Hotels focuses on the company's portfolio, which includes properties at all budget levels. That diversity could be significant if consumers are looking to find more budget-friendly options.
On the other hand, there is evidence to show that it's the luxury consumer that continues to spend. That may mean that Choice Hotels will lose market share to premium hotel chains.
About Choice Hotels International
Choice Hotels International, Inc, together with its subsidiaries, operates as a hotel franchisor in the United States and internationally. It operates through Hotel Franchising & Management and Corporate & Other segments. The company franchises lodging properties under the brand names of Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Ascend Hotel Collection, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Studios, WoodSpring Suites, Everhome Suites, Cambria Hotels, Radisson Blu, Radisson RED, Radisson, Park Plaza, Country Inn & Suites by Radisson, Radisson Inn & Suites, Park Inn by Radisson, Radisson Individuals, and Radisson Collection.
Read More - Current Price
- $146.53
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 6 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $130.00 (11.3% Downside)
As you can see, short interest is not, by itself, bullish or bearish. But, it can give investors a view into how analysts and institutional investors feel about a company. At that point, it's up to every investor to perform their own due diligence to understand if the high short interest is a temporary situation or an indication of a deeper problem with the company.
One of the potential consequences of high short interest is an event known as a short squeeze. This occurs when a large percentage of short sellers attempt to cover their shares (i.e., take profits) at the same time. This buying pressure can cause the share price to make a rapid move higher creating a short squeeze.
MarketBeat has a free tool that can help you track companies with high short interest. You'll find the Short Interest category under the Market Data tab. Click on Largest Short Interest to see the stocks with the highest short interest in terms of percentage.
More Investing Slideshows:
