Solar: Short interest jumps, despite share prices rallying
The renewable energy sector has suffered from Governments around the world slashing funding subsidies as a consequence of the global financial crisis. Heavy short interest has built up in these stocks, yet share prices have rallied over the past weeks, driven by nervousness about nuclear power and turmoil in Libya and the Middle East driving up the price of oil. Data Explorers fund flow sentiment shows that short sellers have increased their positions, despite share prices of solar stocks rallying by up to 30%. We look at: SolarWorld AG (ETR:SWV), First Solar Inc (NASDAQ:FSLR), Q-Cells SE (ETR:QCE), Trina Solar Adr (NYSE:TSL), Yingli green Energy Holding ADR (NYSE:YGE) and SMA Solar AG (ETR:S92).
Germany’s second solar company by market value, SolarWorld AG, bucks the trend of rising short interest, yet the picture is complicated. The shares have increased by almost 30% since the terrible earthquake which caused worldwide concern about nuclear safety. In turn, the heavily shorted stock saw a rush by investors to cover short positions and short interest declined by almost one third to 15% of total shares outstanding on loan. However, Barron’s lively blog cited comments from Axiom Capital Management to the effect that a number of large installation/integration/distribution companies in Germany have begun cancelling purchase orders for solar panels. Long only funds who lend, our proxy for institutional ownership, have slashed their holding by 50% since the disaster. This has driven the percentage of lendable supply currently out on loan (utilization) to almost 90%, meaning it would be hard to short more of the stock.
Barron’s also reported that sector bears, Axiom, forecast an acute correction following the share price rises across the solar sector. First Solar has seen short interest build from an already high level of 17% to 20% of total shares outstanding on loan, despite the share price rally. This follows a quarter of short covering.
Trina Solar Adr has seen a similar pattern. Short interest jumped from 24% to 30% of total shares outstanding on loan as the share priced rallied by 20%. This stock has a convertible bond in issue and may to be subject to arbitrage, but the recent surge in the amount of stock on loan implies at least some directional short selling. Yingli Green Energy Holding ADR is a further example. Following three months of consistent short covering, the company has seen short interest increase from 7% to 11%, despite a 30% increase in the share price.
Q-Cells SE is reported by Reuters to have “downplayed hope of an upturn in orders” and warned of the looming effect of European subsidy cuts on profits. Short interest has risen to 50% of the shares in issue – a massive level. Despite this, the shares have shown a slight recovery over the past quarter, although they are still off the levels seen last year.
SMA Solar AG, Germanys largest solar company by market value, seems one of the least impacted solar stocks. Short interest has held steady at an annual high of 15.5% of total shares outstanding on loan over the last two weeks, but with only 10% of the lendable supply left available to loan, this may serve as an expensive stock to short. The company predicts a temporary stagnation in 2011 following strong domestic demand last year, ahead of subsidy cuts.
Despite the rally in share prices of solar stocks over the last few weeks it seems that short sellers remain sceptical about the long-term prospects for the sector and have increased their positions. It remains a sector to watch.
