If you’re after a list of information technology (IT) stocks short sellers are targeting, then one should study this article carefully. IT stocks have been facing some headwinds recently, with valuations that appeared stretched even as the broader markets have been volatile. This combination of lofty valuations and market turbulence has made holding many IT names a risky proposition for investors.
I also think that the opportunity cost of being heavily invested in IT has also been a consideration. There are some truly great companies in the tech space that could be strong outperformers for the next decade, so why hold on to struggling non-performers or speculative moonshots?
The tech sector could be due to trim some of the fat it has accumulated over the past year due to the massive rise of tech stocks. This could be considered a reckoning by many. However, some are more risky than others.
So here are three IT stocks short sellers are targeting that have the highest short interest. They also have the most pessimistic backdrops at the time of writing.
Enovix (ENVX)
Enovix (NASDAQ:ENVX) is prominent in the technology sector, focusing on the development and manufacturing of advanced silicon-anode lithium-ion batteries. It’s using an unconventional approach for their production, but I feel its shaky fundamentals could be courting the attention of shorts, with 27.18% of its float sold short.
Not everything was bleak for ENVX in the short term. It reported a significant revenue increase for the fourth quarter of 2023, with figures reaching $7.4 million, up from $1.1 million in the same period the previous year. Progress in scaling operations accounts for this growth.
However, ENVX anticipates a revenue projection between $3.5 million and $4.5 million for the first quarter of 2024, alongside an adjusted EBITDA loss of $24 million to $31 million.
There have been some pretty speculative forecasts for when ENVX will reach breakeven profitability. Some analysts suggest its earnings per share (EPS) will be positive sometime in FY2027. Yet this also implies a massive top-line surge from $22.68 million to $773.24 million to get there. Scaling to this amount of revenue will be no small feat.
PetMed Express (PETS)
PetMed Express (NASDAQ:PETS) operates as an online pet pharmacy offering a range of prescription and non-prescription pet medications. 29.50% of its total floated shares are sold short, with a substantial portion of the market betting against it in the short term.
PETS has been caught up in a bit of drama recently. PETS reported a year-over-year increase in net sales of 11% for the quarter ended Dec. 31, 2023, reaching $65.3 million. The PetCareRx acquisition partly accounts for this growth. The gross profit for the same period was expected to be $17.9 million with a gross margin of 27.4%, an improvement from the previous year.
However, PETS also announced it would restate certain financial statements due to accounting errors, particularly in tax-related entries and the valuation of assets related to PetCareRx.
The market seems to be betting those financials are not as attractive as the Street likes., The large bet placed on negative results coming true seems warranted.
C3.ai (AI)
C3.ai (NYSE:AI) specializes in enterprise AI applications. It was once extensively covered by analysts as one of the hottest AI stocks on the market. Today it seems that people’s sentiment has shifted over the past 12 months. Investors sold short 29.78% of its total float at the time of writing.
For the fiscal year 2024, AI stock has provided revenue guidance ranging from $306 million to $310 million, with an anticipated non-GAAP loss from operations between $115 million to $123 million.
Despite these optimistic projections, AI stock has experienced challenges such as insider stock sales and tepid optimism among analysts. For example, key executives dumped 61,931 shares of the company within the last six months. It also currently has an analyst consensus rating of “Hold.”
There are also some other concerns regarding its valuation and share dilution concerns. It lost 78.82% of its value over the past five years but increased around 8% over the past 12 months. Although it has no debt and a robust balance sheet, it may choose to continue to issue shares in its stock-based compensation model or as a means to reach profitability. That would further the bear case for AI stock.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
