Apple shareholders need not worry that it is the smallest US stock. I’m referring to a report from short-seller analytics firm S3 Partners, after 864 days, which included Tesla TSLA,
At the top of the list was the Apple AAPL,
It has achieved dubious respect. As of September 14, a total of $18.4 billion worth of Apple shares were sold short, eclipsing Tesla’s total of $17.4 billion. It certainly sounds like a lot of money is betting aggressively that Apple’s stock will fall.
Perhaps the first clue that Apple investors still need not worry comes from Tesla’s market-beating performance, even though it tops the shortest list. According to FactSet, from April 2020 to September 14, the stock delivered an annualized total return of over 100%, compared to 15% for the S&P 500 SPX,
Apple investors can only expect it to outperform the market during a time when the company is at its smallest.
Tesla is of course just one data point. Apple investors better reason not to worry is that the sheer dollar amount of shares sold short is “quite meaningless,” Jay Ritter told me in an email. Ritter is a finance professor at the University of Florida and co-authored One of the more cited academic studies on the investment implications of low interest, He said that he is currently not the little Apple but the little Tesla.
For small-interest data to be meaningful, it must be placed in context. A significant amount of Apple’s shares can be sold short, but the company also has the largest market cap of any publicly traded company in the world. More relevant short-selling metrics include the short-interest percentage (number of shares expressed as a percentage of the total number of shares outstanding) and the day-to-cover ratio (number of shares sold short divided by the average recent). daily trading volume).
In terms of either of these ratios, Apple is actually one of the most underrated stocks. According to FactSet, Apple’s rank in terms of small-interest ratio is 477. Isth Place in 500 stocks within the S&P 500. In terms of day-to-cover ratio, it ranks at 463.third place. In other words, trumpeting as one thing in the headlines is actually the exact opposite.
Could Heavy Shorting Be Bullish?
Some opponents may be disappointed to learn that Apple’s low-interest rank is so low. This is because he believes that higher levels of shorting are actually bullish.
The problem with this paradoxical argument is that it is incorrect, according to Adam Reid, a finance professor at the University of North Carolina who is one of the academics’ leading experts on the importance of short-sale data. In an email, he told me that the strong consensus conclusion of many academic studies is that stocks, on average, tend to underperform the market if they have a high interest ratio.
He said he is not aware of any academic research that has found the sheer dollar value of short sold shares to be correlated in any meaningful way with the stock’s subsequent performance.
Bottom-line? Apple’s recently achieved first-place ranking on the shortest list is a lot of sound and fury, indicating nothing at all.
Mark Hulbert is a regular contributor to MarketWatch. Their Hulbert Ratings track investment newsletters that pay a flat fee to be audited. he can be reached here [email protected]
More: These 20 stocks have a low interest of 19% or more, and AMC and GameStop aren’t even in the top half.
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