Short interest in Restoration Hardware (RH US), the home furnishing retailer, has been growing steadily since bottoming out back in May. This is in light of both: a rating’s upgrade by Goldman Sachs to “conviction buy” last month, and last week posting earnings and revenue that topped analysts’ expectation for 2Q.
According to the S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, we have especially witnessed a sharp spike in shorting activity since the beginning of September. Due to this recent surge, estimated short interest exposure of $550 million is now reaching levels last seen back in January. Borrow levels in the stock loan market are currently at a multi-year high, changing hands at 2.5% fee range and trending higher.
Additionally, according to the S3 Crowding Indicator, a measure of the magnitude of the real-time shorting activity relative to market cap and float, a large crowding event has occurred over the past day of trading, implying a surge in demand of late. With an inevitable interest rate hike looming by year end negatively affecting housing-related securities, short sellers are betting that this name is more of a luxury than a necessity for current and future homeowners.
For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC
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