Genesis Minerals (ASX: GMD) shares are Australia’s most shorted. This does not prove, not in the slightest, that GMD shares are about to do down in price. But it does show that large numbers of sophisticated investors think they will. Yes, of course, it is possible for any of us to short a stock. But we tend not to - it tends to be the hedge funds, the sophisticates, who do short in any large amount. So, we’ve evidence that a substantial portion of that professional class think that Genesis is going to decline in value.
We can gain this information simply from newspapers: “Genesis Minerals has established its place as the top dog in Western Australia’s gold consolidation, but a recent uptick in its short interest has investors wondering if it’s got another big M&A play afoot or if it’s just nursing a hangover from the recent index inclusion. The short interest in Genesis sat at a benign 2.8 per cent on September 14 but within a week had shot up to 9.4 per cent. That’s more than triple the base number.”
OK, so it was just included in the index, that would have meant index funds had to buy in, pushing the price up. Weakness after that could perhaps be expected.
Or we can dig a little deeper into market information, note that the short position is now up over 15% of issuance (from S&P Global Market Intelligence) and wonder what’s going on here?
Genesis Minerals share price from Google Finance
15% of the entire issuance looks more than just a play on index inclusion. One thought could be that as Genesis seems to be conducting a roll up - that’s the consolidation part - then is there another deal in the offing which will lead to yet more issuance? Or perhaps, as with the St Barbara deal, is there some thought that it might have overpaid for deals already done?
Worth noting that the general stock market reaction - and it works this way because it’s generally true - is that a takeover is value destructive for the shareholders of the company doing the buying. It’s those who get bought out who take the value in the deal. Not always, not often enough to make takeovers never work, but often enough that that’s more than the average result.
So, highly acquisitive companies can indeed find their share prices fall after a buying spree.
Now, exactly why so many are betting against Genesis is something we can’t find out. But our assumption would be simply that - they’ve been buying other companies, this often doesn’t work out well, so maybe it won’t work out well this time either?
