Equities

Short sellers triumph as Wirecard collapses – but who’s next?

Those shorting Wirecard will have been rubbing their hands with glee after the events of the past few days.

The company, once one of Germany’s tech darlings, last week filed for insolvency after admitting that almost €2 billion in cash missing from its balance sheet likely didn’t exist.

In the space of 11 days the stock price collapsed from just over €100 to as low as €1.15. In the week ending June 26th, Wirecard short sellers made $1.2 billion, with hedge funds accounting for the bulk of that.

Wirecard has been a heavily-shorted stock for a long time, thanks in part to negative coverage by the Financial Times, which has long warned that the company’s finances don’t add up. The stock was so heavily shorted that in February the German financial regulator took the unprecedented step of banning new short positions on Wirecard for an entire month.

Wirecard stock is a fraction of its former value after the 95% drop witnessed over the past 12 days. While hedge funds are still piling in to short the stock, many shorts have already locked in their profits. So what might be the next big target for short sellers?

GSX: Inflated revenues and fake users?

GSX Techedu is a tech company and online education provider focusing on after-school tutoring for primary and secondary school children, as well as courses in foreign language, and professional development amongst others.

The company has been the focus of short sellers for some time now. As of mid-May over a fifth of its publicly traded stock was sold short – 27.3 million shares, worth $815 million at the time. This makes GSX the fourth largest Hong Kong or Chinese equity traded short on US exchanges after Alibaba, Pinduoduo and JD.com.

The company faces claims from Citron Research and Muddy Waters that it has inflated its revenue figures. Citron, which has called GSX “the most blatant Chinese stock fraud since 2011”, has questioned the 431% year-on-year revenue surge reported by GSX in 2019. Additionally, Muddy Waters believes that around three quarters of the company’s reported students are actually bots rather than paid users.

GSX listed on the New York Stock Exchange on June 6th 2019 with an initial offer price of $10.50. The stock is now trading at around $58, and has surged 146% this year.

You can trade this hotly-watched stock on the Marketsx platform.

Tesla shorts down but not out

Tesla founder Elon Musk has been battling against short sellers for a long time. The huge rally seen in the stock price in recent months, while dealing a painful financial blow to short sellers, seems to have only hardened their resolve. Back at the end of January, a stronger than expected earnings report from Tesla saw shorts lose $1.5 billion in a single day. Then, at the beginning of March as the pandemic panic set in, Tesla’s tumble netted shorts $2.8 billion.

Tesla is the most shorted US stock, with the value of its float out on loan rising around $3 billion in the last two months to over $16 billion. That’s around 11% of its publicly available stock. The stock recently rose to trade above $1,000 per share for the first time, helped by resilient demand for its vehicles in China and progress towards a one million mile battery, which could revolutionise the electric vehicle market.

However, shorts believe there is still a large disconnect between where the stock is now and the fundamentals of the company – it went public ten years ago and, while the stock is up over 4,000% since then, Telsa has never delivered a full year of profitability. Shorts are betting that a lot of the recent gains seen in Tesla stock is because of momentum traders, and that the bubble will eventually burst.

Will Hammerson follow Intu into administration?

In the UK, shopping centre owner Hammerson attracted a lot of attention from short sellers during the height of the pandemic panic in March. It’s the most shorted UK stock, with 13% of its publicly traded shares out on loan. A total of nine hedge funds are betting against the stock, as the impact of the lockdown to battle Covid 19 and the prospect of a sluggish reopening hampered by social distancing measures, threatens the outlook for the company.

Rival Intu, owner of some of the UK’s largest shopping centres, entered administration this month. The company was already heavily laden with debt, and the coronavirus pandemic proved to be the final straw.

The fate of Intu shows just why short sellers are interested in Hammerson: as of the end of last week the collapse in its stock price left Intu valued at just £16 million, down from £13 billion in 2006.

While Hammerson raced higher from its mid-May low as its tenants prepared to reopen their stores, the stock has since lost nearly half its value again.

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