If you are actively investing in stocks, then it’s worth knowing which stocks investors are betting most heavily against. The stocks that are being shorted the most are usually seen as low quality companies, and may be best left alone. On the flip side, companies that are too heavily shorted may be undervalued. Obviously, there is no cut-and-dry answer to the meaning of a particular stock being shorted in high volume. However, it generally signals low quality or risk, and can sometimes indicate profitable “short squeeze” opportunities. In this article, I will share three of the TSX stocks that investors are betting against the most heavily.
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Canopy Growth Corp
Canopy Growth Corp (TSX: WEED) is a Canadian cannabis company that has fallen on hard times. After securing a $5 billion investment from Constellation Brands in the period when cannabis optimism was running high, it proceeded to burn through the entire five billion with very little to show for it. Today, the company is busy trying to get itself back on its feet.
Today, Canopy Growth Corp has only $226 million in cash on its balance sheet, despite having received a $5 billion cash injection seven years ago. Obviously, it has been burning through cash at a rapid pace. With $280 million in annual revenue, $188 million in operating expenses and $193 million in operating expenses, it has $-101 million in operating profit. At its current pace, the company would burn through all of its cash in under two years. On a more positive note, the operating loss has been getting smaller. But with so much cash having been burned already, it’s not clear that the company will be able to prevent itself from sinking before the clock runs out.
Roots
Roots Corporation (TSX: ROOT) is a clothing vendor that was quite popular in the 1990s but which has fallen out of favour in recent years. The company’s financial statements show modest growth in revenue and gross profit over a 10-year period, but a decline in both over the last five years. Anecdotally, the company’s products don’t appear to be as popular as they once were. The author of this piece used to see people wearing Roots branded clothing all the time, but recently hasn’t been seeing much of it. On the flipside, the company is profitable, and has a manageable amount of debt relative to equity. This may not be an exciting investment opportunity, but it’s no Canopy Growth Corp-like disaster.
Corus Entertainment
Last but not least we have Corus Entertainment (TSX: CJR.B), a media company that has given investors a brutal ride over the years, with its stock down 89% in the last 12 months alone. The problem here is that the company is unprofitable, and has been getting more deeply unprofitable over the years. Its net income was $-793 million in the trailing 12-month period. On the flip side, its gross and operating income were both positive in the period, with healthy margins. The company’s big net loss was largely due to impairment charges. Overall, I’d say this stock is one to avoid, but I wouldn’t short it personally.
