Why Are So Many Investors Shorting Surging Best Buy Stock?

Best Buy Stock
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Should You Be Bearish on Best Buy Stock? 

Best Buy Co Inc (NYSE:BBY) hit a new five-year high today, but that wasn’t the only thing breaking records: shorting on Best Buy stock shot up more than it has in nearly a decade.

As reported by Matthew Unterman, a director at S3 Partners, LLC, “According to the S3 Short Interest projection, a measure of the real-time relative change in shorting activity, we are estimating real-time short interest to be as high as $2.6 billion in exposure on a notional basis, with as much as 57 million shares now out on loan to borrowers.” (Source: “Best Buy bears are betting that the market is wrong,” MarketWatch, December 6, 2016.)

The article went on to say that there hadn’t been shorting like this on Best Buy stock since just before the financial crisis, in July of 2007 through January of 2008. At the time, short interest exposure averaged $2.9 billion during those six months.

Part of the upward tick in Best Buy stock’s recent performance was a stronger-than-expected Q3 earnings report. Analysts had predicted $0.47-per-share earnings, but Best Buy stock destroyed those projections by bringing in $0.62 per share. Net sales rose to $8.9 billion, beating the estimate of $8.85 billion. And to top it all off, U.S. same-store sales increased by 1.8%, superior to the prior year’s 0.8% gain.

So why do investors still hate on Best Buy stock? The increase in short bets clearly shows that many are still not convinced that Best Buy stock can keep it up, and yet the company has been able to sustain this success for the past several months, proving shorts wrong.

Much of the concern over Best Buy stock stems from alternative retailers to the big-box store, including online options like Amazon.com, Inc. (NASDAQ:AMZN).

In any case, Best Buy is happy with its big stock win today, even if some investors are still convinced that it’s all a flash in the pan.