Why are EML shares attracting so much short interest in April?

Shares in EML Payments Ltd (ASX: EML) have levelled off after a short-lived recovery in March. From the beginning of last month, EML shares thrust off a low of $2.20 per share and raced north to touch the ceiling at $3.01 apiece.

Since, prices have taken a step backward and rest at $2.80 per share before the open of trade on Thursday.

The shortened week has done nothing to save EML’s stock either, with the share price sliding more than 13% since trading restated in January.

EML also leads the list of companies with the largest amount of short interest as a percentage of free float, and its been embroiled in a takeover drama with private equity giant Bain Capital.

Before the open on Thursday, EML has a short interest ratio of 15.2 with more than 34.5 million shares in the hands of short sellers. It hit a high of 33.5 two weeks ago. As such, 9.2% of its shares are under short interest.

Why are investors bearish on EML?

Interestingly, bearish wagers on ASX names has increased over the past few weeks, and again week-on-week to Wednesday.

“Total Australian short interest [was] A$21.5 billion vs. A$21.3 billion last week; [whilst] bearish bets [were] equivalent to approximately 1.08% of equity float,” according to Bloomberg Intelligence, from internal calculations.

Of the entire market, consumer discretionary and information technology sectors are most shorted, with 2.4% of short interest in each segment, Bloomberg data shows.

Arguably, both of these industries have spillover into EML, considering its a technology-based payments company that relies on customer transactions to generate operating income.

In fact a quick check sees that these 3 ‘instruments’, let’s call them, have moved in almost unison since October last year.

Last week, EML released a statement advising it had been in talks with Bain Capital last year for a purported buyout.

As TMF reported at the time, Bain walked away “because of the high price tag after looking at the due diligence numbers.”

“The board of EML said that it would always consider proposals presented to the company and that it’s fully committed to acting in the best interests of shareholders. The goal of EML’s board is to maximise value for shareholders,” it was reported.

Investors weren’t galvanised by the outcome and refused to allocate more capital to EML shares, meaning the stock remains in the lurch for 2022.

Ron Shamgar of Tamim Asset Management appeared to see the reasoning behind Bain’s decision, in a post last week.

“If ASX investors won’t value businesses properly, then others will take them off their hands and reap the rewards over time!” he wrote.

The EML share price is down more than 49% in the last 12 months despite a 14% surge over the past single month.

The post Why are EML shares attracting so much short interest in April? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Why AVZ, EML, Iluka, and Webjet shares are charging higher
• EML share price soars 11% amid takeover attention
• ASX 200 midday update: AVZ and EML shares jump
• Takeover talks: EML share price in focus

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended EML Payments. The Motley Fool Australia owns and has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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