As we start a new week, these 5 shares are the most shorted shares on the ASX. Below, I take a look at why they may be the target of short sellers.
Short selling is when an investor borrows a security, for example shares, and sells it on the open market, planning to buy it back later for less money. Short sellers bet on, and profit from, a drop in a security’s price.
Nufarm Limited (ASX: NUF)
According to the ASX’s short position report, Nufarm is the most shorted share on the ASX with 16.7% of its shares held short. This spectacularly backfired on short sellers last week when the Nufarm share price rocketed higher following the release of its full year results.
Concerns over drought conditions and its effect on future earnings has been a key reason for the significant short interest in the company.
Syrah Resources Ltd (ASX: SYR)
Short interest in Syrah stands at 16.2%. The company owns and operates the Balama Graphite Project in Mozambique, which is the largest natural graphite mine in the world.
As usual when dealing with a commodity, Syrah is at the mercy of the prevailing graphite price at any one time. Currently, the business is uneconomic with the cost of production exceeding revenue earned from sales.
Galaxy Resources Limited (ASX: GXY)
Galaxy is a lithium miner which has seen its share price struggle ever since peaking above $4 last year. It is now down more than 75% after hitting a new 52 week low last week.
The fall in the share price has coincided with a fall in the price of lithium, which has recently hit a 2 year low with plenty of excess supply keeping a lid on prices.
Short interest in Galaxy shares stands at 16.2%.
Orocobre Limited (ASX: ORE)
Orocobre is a lithium miner that is suffering from the same fate as Galaxy. Although its share price hasn’t fallen quite as far, it is still down about 70% from its peak last year.
Given the excess supply in the lithium market, it’s currently hard to see an imminent turnaround in the price of lithium. As a result, Orocobre’s share price is likely to remain under considerable pressure, at least in the short term.
Inghams Group Ltd (ASX: ING)
As of this morning, 14.9% of shares in the company are in the hands of short sellers. Inghams is a poultry producer that has been battling with drought conditions in a number of the areas in which it operates. Droughts tend to significantly increase the cost of feed which is a significant cost of doing business for a poultry producer like Inghams.
The Inghams share price is down more than 33% from its peak earlier this year, with most of the decline coming just after the company released its full year results in late August.
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At the time of publishing, Luke has no financial interest in any companies mentioned.