Top three shorted ASX stocks- BET, FLT and MP1

On 14 February 2023, ASIC published the list of shorted stocks for 09 February 2023. As per the list, the agency reported 674 companies that were shorted on that day.

Betmakers Tech Group (ASX: BET), Flight Centre Travel (ASX: FLT), and Megaport Limited (ASX: MP1) are the top three most shorted stocks.

A Glance at top 10 most shorted stocks (09 February 2023):

The two most common reasons for short selling are speculation and hedging. The reason for engaging in short selling is that short selling gives profit without putting much money upfront. If a person involved in short selling makes the correct decision, then there are chances of making a huge profit if the stock plunges.

About Short Selling:

Short selling is an investment strategy in which investors speculate on the decline of stock or other securities prices. Let's understand the concept with an example.

Suppose a stock is trading at $100. Now, the investor borrows 100 shares from the broker-dealer and sells at $100. So, he receives $10,000 by selling these shares. Now, the stock price has tumbled to $50. At that price, the investor buys 100 shares of the same Company. Now, he buys 100 stocks of the same Company for $5,000. In this process, the investor makes a profit of $5,000 without holding the stock.

Considering the concept of short-selling, let us understand the possible reason why BET, FLT, and MP1 were the most shorted stocks on 09 February 2023.

Betmakers Technology Group Limited (ASX: BET)

Betmakers Technology Group was the most shorted ASX stock on 09 February 2023. Probable reasons for short selling could be the Company's valuation. Some other factors could be the competition and cash burn of short selling.

The shares have delivered a negative return of 7.32% in the last five days. At present, the stock is trading near its 52-week low price. The relative valuation of this stock based on price to cash flow ratio as on 15 February 2023 stands at 0.2x compared to 7.2x on a forward 12 months basis, indicating its undervalued position.

Recent Development:

On 31 January 2023, the Company announced December 2022 quarterly results. Q2 FY2023 marked one of the important operational developments for the Company, as it launched the betr platform and navigated its largest-ever Spring Racing Carnival.

Compared to Q1 FY2023, the Company's cash receipts increased by 13% and 9% compared to the previous corresponding period.

Other significant developments during the quarter include:

• Launch of Global Tote Hub, representing the world's most widely deployed parimutuel software solutions, offering services to a global network of over 300 racing and wagering partners.
• Acquired Punting Form, which uses proprietary IP and artificial intelligence to create sectional times and benchmarks for horse racing which are used for time-based rating systems.
• It is the winner of Deloitte Australia's 2022 Tech Fast 50 Leadership Award.

Flight Centre Travel Group Limited (ASX: FLT)

Flight Centre Travel Group was the second most shorted stock on ASX on 09 February, although the Company announced an update on the Scott Dunn acquisition. In the last one week, the stocks have delivered a negative return of 7.32%. Another probable reason for short-selling could be the valuation of the stock. Based on the forward 12 months, the Company's Price to sales ratio is significantly above the industry median, indicating the Company's overvalued position.

Recent Development:

On 09 February 2023, the Company opened its Share Purchase Plan (SPP) to support the acquisition of Luxury Travel Holding Limited (Scott Dunn). The SPP was announced following the completion of Placement on 06 February 2023.

Scott Dunn's acquisition will provide an admission point into the UK as well as the US luxury travel market via a well-regarded, scalable brand that will be supported by FLT's global platform.

Megaport Limited (ASX: MP1)

Megaport Limited was the third most shorted stock on ASX. MP1 shares dropped amid a broad tech sell-off. Also, the Company noted that growth might slow down in the short term, with a forthcoming global downturn putting a break on big IT purchases. This could be one of the major reasons for short-selling. Another probable reason for short-selling could be the valuation of the stock. Currently, on forward 12 months basis, the Company's EV by sales ratio is below the industry median, indicating the stock's undervalued position.

Recent Development:

On 09 February 2023, the Company announced 1H FY2023 results. The Company's revenue improved by 27% to US$47.351 million compared to the previous corresponding period. The Company's net loss was reduced in 1H FY2023. The Group EBITDA was positive in 1H FY2023, continuing the positive momentum from a breakeven exit in 22 June and a positive quarter.

During 1H FY2023, the Company's revenue was driven by customer growth and service uptake across all regions. The USA is the biggest contributor to NAM and accounted for 56% of group revenues in December 2022.

 Bottomline:

Heavily shorted stocks get huge market attention as people fear of tremendous losses. It also impacts investors' confidence. There are several reasons for short selling, like the weak outlook, performance, and stock valuation. However, the positive side of short-selling is that the investors have a chance to make a profit from the falling stock prices. If the investors identify the stock appropriately with a positive outlook, there are high chances of making profits.

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