AI stocks, biotech stocks, and renewable energy stocks dominate the list of most shorted stocks, but there also many consumer discretionary stocks short sellers are betting against.
There is an excellent reason for this. Even as the U.S. economy remains resilient, despite challenges such as high inflation and high interest rates, a continued “soft landing” is hardly a guarantee.
As inflation remains elevated, and as recent statements from Federal Reserve officials suggest that the central bank is walking back its “Fed pivot” plans for 2024, high rates may persist longer than expected. In time, this could finally affect economic growth, affecting sectors most hard hit (like consumer discretionary) by such a change.
Alongside macro-related reasons, there are also company-specific reasons the short side is so heavy with certain consumer discretionary stocks. These include poor fundamentals, rich valuations, and other concerns that may snowball into major issues.
Below are the top seven consumer discretionary stocks short sellers are betting against. Let’s take a closer look and see whether the bears are on the right or wrong side of the trade.
Carvana (CVNA)
Rebounding twelvefold off its 52-week low, Carvana (NYSE:CVNA) has made short-squeeze traders very rich, but has caused billions in losses for the short-seller community. Yet while one would think this would scare off the bears, that hasn’t been the case.
CVNA has continued to have high short interest. At present, around 33.8% of the online used car retailer’s outstanding float is sold short. While fading Carvana was a losing trade in 2023, and has stayed one thus far in 2024, those betting against that meme stock at today’s price could have the last laugh.
While Carvana has been successful in its efforts to improve gross margins, analyst consensus stills call for net losses to persist through at least 2026. Even if the company manages to hit the top end of estimates, and become consistently profitable, shares trade at a high multiple to peers based on these ambitious forecasts.
Kura Sushi USA (KRUS)
Kura Sushi USA (NASDAQ:KRUS) is another of the top consumer discretionary stocks short sellers are betting against. 24.7% of the revolving sushi bar operator’s outstanding shares have been sold short.
You don’t have to look far to determine the bear case for KRUS stock. Yes, Kura Sushi appears to be growing at a rapid clip. Forecasts call for revenue to rise by around 27% next fiscal year (ending August 2025), and for earnings to more than double during that time frame.
However, a valuation of 296.2 times forward earnings is simply too rich, even when taking this fast growth into account.
More importantly, with shares “priced to perfection” to such a degree, there’s a lot more out there that could knock KRUS lower rather than send it higher. Even the reporting of results in line with expectations could drive disappointment, leading to a heavy reversal for shares.
Kohl’s (KSS)
At first glance, Kohl’s (NYSE:KSS) may seem ripe for a short-squeeze. Shares in the department store chain trade at a low valuation of 10.6 times forward earnings.
With the company’s fiscal performance already squeezed by high inflation, you may think that results could improve dramatically, if optimistic forecasts calling for easing inflation play out.
Add in other factors, like activist investor involvement, and you really think KSS stock is a deep value opportunity. However, while well-aware of these positives, the bears who have sold 31.8% of KSS’s outstanding float believe several key negatives will make this would-be deep value play a value trap instead.
Based on the latest guidance, the company expects further weak results in 2024. As InvestorPlace’s Jeremy Flint argued last month, in the years ahead, Kohl’s could end up going the way of Sears, because of its continued inability to become an omnichannel retailer.
Luminar Technologies (LAZR)
Lidar stocks like Luminar Technologies (NASDAQ:LAZR) were very popular during the runaway bull market of 2021. Since then, though, these autonomous driving technology plays have fallen fully out of favor.
During this time frame, LAZR stock has fallen by more than 95%, to just over $2 per share.
While the short-side has already profited massively from this trade, many of them have yet to close out positions. At least, based upon the fact 26.9% of LAZR’s outstanding float remains sold short. Clearly, the shorts see Luminar falling towards zero.
Due to EV demand decline, ongoing high net losses, and dwindling cash, LAZR is a top target for short sellers. While you don’t need to short it, take the hint: avoid at all costs.
Lucid Group (LCID)
As I’ve argued in past articles discussing Lucid Group (NASDAQ:LCID), the bear case is pretty clear-cut. Shares in this early-stage EV manufacturer are in a dilution spiral. Lucid has failed to gain traction as a major EV brand.
Production and sales have both fallen far short of initial forecasts. Throw in the curveball of the aforementioned EV growth slump, and Lucid has reported consistently-high operating losses as a result. In order to cover these losses, the company has raised capital by selling additional shares of stock.
Primarily, to Lucid’s majority owner, Saudi Arabia’s Public Investment Fund (PIF). As the share count rises, while underlying results fail to improve, the per-share value of LCID stock has, and is likely to continue to, decline. With 28.9% of LCID’s outstanding float sold short, the short seller community has come to a similar conclusion about this down-and-out EV play.
Lovesac (LOVE)
Home furnishings company Lovesac (NASDAQ:LOVE) is one of the consumer discretionary stocks short sellers are betting against. 26.1% of outstanding float has been sold short.
Last summer, I argued that heavily-shorted LOVE stock was a situation where going long was a better move than going short.
Lovesac appeared on track to beat expectations, and guide for better times ahead. However, while the company’s fiscal results have beat expectations in recent quarters, analysts have walked back expectations for future results.
At one point forecasting earnings of $3 per share for the fiscal year ending January 2025, consensus now calls for earnings of $2.09 per share. Even this reduced forecast could be walked-back further.
As InvestorPlace’s Matthew Farley pointed out last month, Lovesac keeps struggling to improve its margins. Improved results for Loveac may also hinge heavily on a further “soft landing” for the U.S. economy.
Wayfair (W)
Recently, sell-siders have become more bullish about Wayfair (NYSE:W). For instance, on April 4, Evercore ISI’s Oliver Wintermantel upgraded the home furnishing online retailer’s shares to “outperform.”
In Wintermantel’s view, following the company’s successful cost reduction efforts, it’s well-positioned to report very strong results later this year, as the housing market recovers.
Yet while the Wall Street analyst community is warming back up to W stock, the same can’t be said about the so-called “smart money” short-sellers.
23.6% of W’s outstanding float remains sold short. While not certain, this may be because, assuming a comeback does indeed arrive later this year, it’s likely more than priced-in by now.
Shares today trade for around 60 times estimated 2024 earnings, and nearly 30 times estimated 2025 earnings. If a late-2024 housing rebound fails to arrive, W may be at risk of a big correction.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.