Should you avoid some of London’s most shorted stocks, Ladbrokes plc, Ocado Group plc and Just Eat plc?

Will the short sellers prevail in Ladbrokes plc (LON:LAD), Ocado Group plc (LON:OCDO) and Just Eat plc (LON:JE)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

These growth stocks below have large short interests from institutions and hedge funds. All three are among the most shorted stocks in London. 

Company Short Interest
Ocado 19.66%
Ladbrokes 8.52%
Just Eat 7.02%

Increasing competition for Ocado

Ocado (LSE: OCDO) has been under pressure for some time now. Increased competition from companies such as Amazon and Uber has made investors doubt whether Ocado can be a success. The thin margins Ocado operates on give the company little room for manoeuvre and competing against companies with seemingly endless amounts of capital will be tough. Worryingly, the company has been borrowing more and using lots of cash to develop the business. 

I’m still doubtful of the business model and the £1.5bn market cap looks insane to me. There has been much talk of a takeover attempt coming from a big rival but I can’t see Amazon coming along and spending billions on a small operation. It seems as if many financial professionals are betting on Ocado to fall and shares have indeed fallen 40% in the last year. The shares have been on a steady decline since early 2014 and I see no reason why it won’t continue. 

Transformational merger

Ladbrokes (LSE: LAD) is on the verge of completing an impressive merger with Coral Group. The enlarged business will be a market leader and own just under 4,000 betting shops. Recently the company got the all clear on the deal from the Competition and Markets Authority provided the company sells 300-400 shops. This should be a simple transaction for the company and I expect it to go through without a problem. 

The deal will create £65m of cost synergies per annum and boost online growth for Ladbrokes. This is key going forward as the online segment is where Ladbrokes has historically struggled. The company currently pays a chunky dividend yield of over 4% and looks set to post some impressive earnings growth in the next few years. 

Flying takeaway

Online company Just Eat (LSE: JE) is moving from strength to strength at the moment. In the last three months shares are up 17% and I believe they could go much further. The company has already upgraded earnings forecasts for 2016 once and could easily do it again. The shares are trading on a forward price-to-earnings ratio (P/E) of just 29 for 2017. To me, this is relatively cheap for a growth company with the potential of Just Eat. 

The company also benefits from first-mover advantage. Just Eat was the first company to get into the online takeaway space and any competitors will find it incredibly hard to displace Just East at the top. In my opinion Just Eat could see another 20% increase in its share price this year if targets are met. 

Looking at the short interest in stocks is a valuable exercise in my investment research and I would recommend all private investors use the FCA resource.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »