The heavily shorted UK stock market has been a topic of interest for many investors in July. Short selling, which involves selling borrowed stock with the expectation that the stock price will decline, can be a risky but potentially profitable strategy. Investors who can successfully navigate the volatile market can reap significant profits. With that in mind, let’s take a look at some of the most shorted UK stocks and whether they are worth buying in July.
Ocado, the online grocer, has consistently ranked as the most shorted UK stock. With a short interest rate of 6.2%, it has attracted significant attention from short sellers. However, the recent news of a potential acquisition by Amazon caused the stock to surge 50% in June. Short sellers scrambled to buy Ocado stock to avoid substantial losses. Despite this recent spike, Ocado has been in the red since 2017, and its path to profitability remains uncertain. With reports suggesting that Amazon has rejected the idea of acquiring Ocado, there may be better investment opportunities available.
ASOS, an online fashion retailer, was also heavily shorted in June. However, the tide seems to have turned as the company reported an underlying operating profit of $20 million in its third-quarter trading update. This positive news has helped ASOS recover from its previous slump. Although there is still progress to be made in terms of revenues and earnings, the apparel sector looks promising in the near term. If ASOS can continue to improve its cost base and leverage the positive figures from other companies in the industry, it may be a worthwhile investment.
Moonpig, a greeting card company, tops the list of heavily shorted UK stocks. Despite reporting healthy revenue growth, the market focused on the 7% decline in pre-tax adjusted profit. However, this pessimism could work in favor of Moonpig. If the company surpasses expectations and achieves earnings growth of more than 8% while maintaining EBITDA, short sellers may rush to buy Moonpig stock to avoid losses. This influx of buyers could potentially drive up the stock price. With competitors also gaining traction in the online greeting card space, Moonpig could be a promising investment. With a reasonable forward price-to-earnings ratio of 14.5, it is definitely worth considering.
In conclusion, the heavily shorted UK stock market presents both risks and opportunities for investors. While Ocado may not be the most favorable choice due to its continued losses and uncertainty surrounding an acquisition, ASOS and Moonpig show promise. ASOS has shown signs of improvement and may benefit from the positive growth in the apparel sector. Moonpig, on the other hand, could see a boost in its stock price if it outperforms expectations and maintains steady earnings. As always, it is essential to conduct thorough research and consider the potential risks before making any investment decisions.
