Burberry (BRBY) is now among the most shorted stocks in the UK after its week of share price turbulence. On July 15, the luxury fashion brand issued its third profit warning of the year, replaced its CEO, and cut its dividend.
Burberry is now the eighth most-bet-against company in the UK, with 4.75% of its shares being shorted, according to the Financial Conduct Authority’s (FCA) daily list of short positions. You can find out which funds hold long positions in the stock in this article.
Hedge fund Marshall Wace shorted 2.37% of the stock in the days after the profit warning – the largest overall position taken in the UK the past month.
So far this year, Burberry is down 48%, trading at £7.26. Since the start of 2024, Morningstar’s analyst Jelena Sokolova has downgraded the stock four times, from £24.60 to £13.30, meaning it is still significantly undervalued.
UK Stocks Under Pressure
Elsewhere, oil services company Petrofac (PFC) remains the most-shorted UK stock overall, with a net short of just under 10%. The largest single short position is held by Astaris Capital Management, worth 2.51%. The company’s shares were suspended earlier this year after falling more than 99%, but when trading resumed in June, the company jumped over 50%. Shares in the company are currently down 65% in 2024.
The second most-shorted stock is Diversified Energy Co (DEC), which is one of only four stocks in our list with a positive return so far this year (22%). The total short position has been increased enough over the past month to marginally overtake supermarket Ocado (OCDO), which, like Burberry, reported last week and is currently down 50% in 2024. Both companies have about 7% of their stocks shorted.
Ocado, which was kicked out of the FTSE 100 last month, jumped 15% last week and a further 11% on Monday (July 22) as its losses were reduced and demand for its technology solutions business grew. Both D1 Capital Partners and BlackRock took positions against the company after earnings were announced – of 2.24% and 1.96%, respectively – and are the two biggest shorters of the online grocer. Ocado’s share price is currently £4.20, below Morningstar equity analyst Ioannis Pontikis’s Fair Value Estimate of £9.20.
In this list, we have included all stocks where the total net positions are above 3%. Six of these stocks are rated by Morningstar analysts, and all but one are considered to be trading below their Fair Value Estimates. Of these, the stocks with the biggest share price falls are Petrofac, Ocado and Burberry, while those with the biggest gains are FD Technologies (FDP) with 22%, Kingfisher (KGF) at 16%, and Diversified Energy Company.
What is Short Selling? How Does it Work?
Short selling can be a highly profitable way to exploit the falling share price of companies in distress. It involves selling shares you don't own to make a profit from the fall in the price.
To do this, you borrow them from specialist firms like brokers, sell them at the current market price with the hope of buying them back at a cheaper price later. This active trading strategy is usually only undertaken by professional investors, but often provides an early warning sign of problems ahead that can be picked up on by all.
Firms that have attracted short sellers in the past include Thomas Cook and Carillion in the UK, and scandal-hit Wirecard in Germany. Shorting tends to attract other shorters, however, and some argue it only hastens the demise of a company. Sometimes a company on a shorting list may have terminal problems; other times it’s just a temporary loss of confidence prior to a turnaround, or a buyout, which takes the company off the market or puts it in new hands.
Alongside specialist trading firms and hedge funds, some of the biggest asset managers are involved in shorting, including BlackRock, Jupiter and JP Morgan.
