The list of Australia’s most shorted stock is dominates by basic materials and energy players. More than half the list has more than 10% of their issued stock in short positions, indicating investor pessimism about the share’s future success.

What is shorting?

“When someone shorts a stock, they’re trying to sell something that they don’t actually own because they think they can make money later by buying it back at a lower price,” says Morningstar director of investor education Karen Wallace. “Hedge funds do this a lot, but short-selling can be very complicated and risky for individual investors to attempt.”

Shorting is simply a way to profit from a stock falling. Say that you are ‘sure’ that a stock is going to drop in price. Instead of investing in a stock in the traditional sense, where you think the price will rise, you would short a stock. You do this by borrowing shares from brokers and selling them. The brokers themselves are lending them to you from other holders of the shares, so there is a fee associated with the right to do this. The fee that you pay goes to the broker and to the holder of the shares.

By taking possession of the shares and then selling them, you immediately receive cash. Say you borrow 100 shares of a company trading at $10. In this case, you would immediately get $1,000 minus any brokerage paid and the cost of borrowing the shares. Of course, you are borrowing these shares, so they must be returned in the future. If everything goes to plan, the share price would fall which would allow you to buy them back. If the share price fell to $5, you would buy the 100 shares back for $500. You would make a profit, since they were already sold for $1,000.

One really important part of this equation and shorting is the upside and downside possibilities for you as an investor. When you buy a share, your losses are limited to the stock going to a price of $0, but you’ve got unlimited potential – the stock can rise in price – exponentially. Shorting is the other way around, but your gains are limited. A stock can only go to zero, which means your return is capped at 100%. If a stock continues to climb, however, the more it is going to cost you to buy back the shares to return to the lender – so the downside with shorting is limitless.

Due to this, short positions need to be monitored very closely. You need to be able to cover the short by buying back the shares.

Other investors know that short sellers will be forced to cover – or buy back the shares – if the stock rises too much. The short sellers buying back the shares will make the stock price continue to rise as there are even more buyers in the market. This is called a short squeeze and has been a longstanding occurrence in stock markets around the world.

Short interest in stocks can be used to gauge market sentiment, but we encourage investors to focus more on the long-term value of the stock, rather than volatility. The short holding periods of these positions are indicative that this is an exercise in speculation instead of investing.

Below, we look at the most shorted stocks in Australia to gauge this market sentiment, and to consider what our analysts think about the future success of some of these companies.

Here are the most shorted stocks in Australia:

20 most shorted stocks April 2025

Below, we look at the top three most shorted stocks under Morningstar’s coverage. The poor performance that some investors have tried to speculate and profit from has pushed most of these stocks into undervalued territory.

IDP Education IEL ★★★★★

IDP is a global education services business that offers student placement services as well as English language testing through its part-ownership of the IELTS brand.

IDP shares have sold off by more than 40% over the past year as tighter migration policy, including caps on foreign student numbers in Australia and Canada, have led to concerns over the outlook for its student placement business.

As he explained in a recent Ask the analyst article, Ponraj thinks that governments will return to a more supportive stance as cyclical factors like higher inflation (a key driver of tighter migration policy) abate and election cycles in key countries come to an end.

If anything, more secular trends in IDP’s key destination countries—like aging populations, shrinking tax bases and a dependence on immigration for economic growth—would seem to encourage a pivot back towards higher foreign student numbers.

As for IDP’s major source countries, which include India and China, demand for student placement services remains strong as education levels and the size of the middle-class populations in these countries continue to rise.

Taken together, Shane thinks that the main concern holding back IDP in recent months is a transitory one. He expects the student placement segment, which was responsible for almost two-thirds of gross profits last year, can get back to high single-digit revenue growth from 2026.

Turning to IDP Education’s moat, Shane thinks the student placement part of the business has traces of a network effect due to the number of students and institutions it connects. But he does not think it has a uniquely advantaged competitive position against other players, who are essentially commodity providers to the universities.

Instead, IDP’s Narrow Moat rating at the group level comes from network effects attached to its partially owned IELTS English language testing standard. IELTS maintains very high levels of recognition with academic institutions, migration authorities and employers. This, in turn, stimulates high demand from applicants for IELTS accreditation, while this large pool of candidates also incentivises new and existing bodies to accept the IELTS, and so on.

At a recent price of $9.52 (at 6 May 2025), IDP Education trades materially below Shane Ponraj’s Fair Value estimate of $22. The shares commanded a five-star Morningstar Rating at this price.

Pilbara Minerals Ltd PLS ★★★★★

Pilbara Minerals’ Pilgangoora mine in Western Australia is the world’s second-largest hard rock lithium operation and consists of two operating plants, Pilgan and Ngungaju. Pilbara PLS also recently acquired a Brazilian hard-rock project from Latin Resources.

Pilbara is on track to meet fiscal 2025 production and cost guidance. However, the lithium market is more challenged than we previously thought. Electric vehicle sales growth has stalled in the US and Europe, keeping lithium oversupplied.

We temper our lithium price recovery trajectory, materially downgrading our near-term forecast. We now expect prices to reach USD 20,000 per metric ton by the end of calendar 2026, down from USD 25,000 previously. Despite the slow recovery, our midcycle price remains USD 15,000.

The main valuation driver for Pilbara Minerals is the lithium price. As a result, we cut our fiscal 2026 and fiscal 2027 earnings per share estimates to $0.07 and $0.22, respectively, from $0.20 and $0.48, previously. Our fiscal 2025 EPS estimate for a loss of $0.02 is little changed.

We cut our fair value estimate for narrow-moat Pilbara by 12% to $3.00, primarily reflecting weaker expected medium-term lithium prices and earnings. Pilbara’s full ownership of the Pilgangoora mine accounts for about 85% of our valuation. The Latin Resources acquisition comprises the other 15%.

The shares continue to look materially undervalued and while the near-term challenges persist, our positive long-term view is intact.

We expect EV sales to reaccelerate and lithium companies to benefit. Supply growth is set to slow in the near term, and we expect the market to return to balance and support higher prices as demand recovers.

Polynovo Ltd PNV ★★★

Polynovo PNV earns most of its revenue from US sales of its NovoSorb Biodegradable Temporizing Matrix, or NovoSorb BTM. The product is a patented biodegradable synthetic scaffold to support the regeneration of skin when lost through surgery, trauma, burns, or other causes of tissue loss.

Polynovo’s strategy revolves around expanding its geographical footprint to increase access to its products and open new hospital accounts. With its geographical reach the firm estimates its products are available to 800 million people as of fiscal 2023, but highlights the global market is underserved.

The firm entered several new markets in fiscal 2023 including India, France, Spain, Canada, and Hong Kong, Polynovo intends to enter more geographies with new regulatory approvals, particularly with a focus on China and Japan through distribution partners. While the US market is key for Polynovo, representing roughly 80% of sales in fiscal 2023, new geographies would diversify the sales mix.

To support its organic top-line growth in existing and new markets, the firm invests heavily in expanding its sales staff as well as its in-house R&D. Product sales are largely through direct distribution, but Polynovo appointed distribution partners in select geographies including Germany, France, Spain, and Canada. Its R&D efforts center around exploring and receiving regulatory clearances for applications of NovoSorb products beyond the dermal substitute market.

We expect Polynovo’s NovoSorb products to pose a significant challenge to the traditional skin graft. We believe Polynovo will be successful based on the technology’s clinical performance and ease of use backed by a growing number of surgeon-led research and publications.

Polynovo is currently considered fairly valued at three stars, trading near its Fair Value Estimate of $1.15 (at 6 May 2025).

What should you do?

Speculation can be intellectually stimulating—not to mention exciting—but it is however fraught with danger, Morningstar behavioural researcher Sarah Newcomb notes.

“Put simply, a group of investors got organized and found a few companies whose price they could manipulate if they acted en masse to create a microbubble, if you will. Playing the game of price arbitrage is, in this context, both legal and fun, but it is also based largely on speculation about human behaviour, not underlying value.

“Wise investors will see it for what it is: a temporary price adjustment based on nonfundamental factors. Speculation is fun. It’s why a lot of people love investing, and if you speculate with only money you can afford to lose, events like these can be exciting and sometimes profitable. Still, if you are new to investing, don’t understand the difference between fundamental value and market price, or you are considering putting money on the line that you need for your present or future security: stop, breathe, and walk away.” she says.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.