As the overall market continues to break records and achieve new heights, speculation and optimism are rising. During such periods, stocks with unusually high short interest tend to outperform, as the overall market’s strength and bullish sentiment can overwhelm the fundamental reasons that caused bears to initiate short positions.
Over the previous year, several high short interest favorites have emerged. Carvana Co. (NYSE: CVNA), Affirm Holdings, Inc. (NASDAQ: AFRM), and Upstart Holdings, Inc. (NASDAQ: UPST) are three stocks that have grabbed the headlines for quite some time due to their considerable short interest and periods of incredible rise.
Recently, however, four large-cap household names have also seen their short interest rise to unusual levels: The Gap, Inc. (NYSE: GPS), On Holding (NYSE: ONON), Global Foundries Inc. (NASDAQ: GFS) and Mobileye Global Inc. (NASDAQ: MBLY). Are some or all likely to experience an outlier move higher due to the short interest? Or could the bears be sitting pretty? Let’s take a closer look at each one.
1. The Gap Inc.
Shares of apparel retail apparel giant Gap have been on an impressive run over the past year, with the stock up a whopping 161% over the previous year. Year-to-date, shares of GAP have climbed almost 26%, significantly outperforming its sector and the overall market. Considering its remarkable stock performance, it has a reasonably modest P/E of 19.6 and a dividend yield of 2.3%.
While the company has impressed with its staggering stock performance and most recent earnings beat, the sentiment remains overwhelmingly bearish. GPS has a significant short interest of 16.12%, totaling 34.5 million shares sold short. Analysts are not bullish on the stock either, with a consensus Hold rating and price target predicting over 28% downside.
2. On Holding
Another retail company, On Holding, which develops and distributes sports products worldwide, has significantly outperformed this year. Year-to-date, ONON shares are up 27%. The company, which is heavily in its growth phase, has a P/E of 126 and projected earnings growth of 40% for the entire year.
With its impressive share performance and hefty valuation, bears have taken notice. The stock boasts a hefty 14.36% short interest, equal to 29.7 million shares sold short. However, that figure has declined by 10% month-over-month.
3. Global Foundries
Global Foundries, which operates as a semiconductor foundry worldwide, has a P/E of 27.73, projected earnings growth of 110%, and has majorly lagged its sector and the market this year. Year-to-date, shares are down 15.79% and swiftly approaching bear market territory.
Unsurprisingly, short interest remained unchanged month-over-month as the stock slid. It now approaches a significant support area and potential breakdown level near $50. As of Mar. 15, 15.88% of the float, or 12.5 million shares, was sold short.
4. Mobileye Global Inc.
Mobileye is valued at $25.8 billion and operates in the field of advanced driver assistance systems (ADAS) and autonomous driving technologies. The company reported earnings on Jan. 25, topped EPS estimates and reported revenue in line. For the full year ahead, the company has projected earnings growth of 358%.
Analysts are bullish on Mobileye. Based on 18 analyst ratings, the stock has a Moderate Buy rating and price target that forecasts an impressive 38% upside. Notably, its consensus rating is higher than other auto/tire/truck companies, which have a consensus of Hold, and the S&P 500, which is also Hold.
Despite analysts' bullish sentiment, the stock has failed to deliver so far this year, falling by over 25%. As a result, short interest has remained steady over recent months, averaging 20% short of the float. As of Mar. 15, 20.06% of the float was sold short.
Will any of these high short interest stocks outperform?
While the bullish market trends have favored some companies, driving substantial price increases and challenging the bears, others continue to navigate the complexities of investor skepticism and short interest dynamics. The capacity for stocks with high short interest to outperform or underperform is intricately linked to broader market forces, investor perceptions and the evolving stories of the companies themselves.
So will market strength and positive investor sentiment help these high short interest stocks outperform? Or will the concerns about fundamentals– what drove investors to short the stock to begin with – prevail? Only time will tell.
