Last quarter, I covered the most shorted companies on the ASX. At the time, the list was dominated by consumer cyclical and healthcare names. Fast forward to today and the composition has shifted again. Evidence would suggest short sellers are increasingly targeting companies facing commodity price and operational risks.

While consumer cyclical companies remain the largest cohort, short interest in resource companies has increased significantly. This has been led by uranium names including Lotus Resources (ASX.LOT), Boss Energy (ASX.BOE) and Paladin Energy (ASX.PDN). Healthcare also remains of interest to short sellers with Cochlear (ASX.COH), Healius (ASX.HLS), Telix Pharmaceuticals (ASX.TLX) and 4DMedical (ASX.4DX) all featuring prominently on the top 20 ahead of earnings.

ASX top 20 most shorted companies

Eleven companies have remained in the top 20 since March. The largest increase in short positions has been in Lotus Resources, which has become Australia’s most shorted stock. At the same time, short sellers have reduced positions in several former headliners, including Treasury Wine Estates (ASX.TWE), Telix Pharmaceuticals (ASX.TLX) and Guzman y Gomez (ASX.GYG) which we discussed in this Ask the Analyst edition.

Assessing the most shorted companies can provide valuable insight into where some investors see the greatest risks ahead of earnings season. Short interest alone is not an indicator of whether a stock will succeed or fail.

Analysing short positions offers investors one piece of a much larger puzzle. Let’s briefly revisit how short selling works before discussing our analysts views.

Most shorted stocks pre earnings

Shorting 101

In my previous article, I discussed how investors can use the iPhone analogy to understand how shorting works. It is worth revisiting this briefly to ensure readers can fully grasp how and why shorting occurs.

Imagine a friend lends you an iPhone 17. Soon after, you hear Apple is about to release the iPhone 18 and expect the older model to fall in value.

You sell the borrowed iPhone 17. Once the iPhone 18 launches and the price of the iPhone 17 drops, you buy the same model back at the lower price.

You then return the iPhone 17 to your friend and keep the difference between the price you sold it for and the lower price you paid to buy it back.

That’s essentially how short selling works: borrow an asset, sell it, buy it back later at a lower price and pocket the difference. While this iPhone analogy is morally questionable in practise, it is a simple explanation on the process of shorting.

Investors and institutions will take a short position when they believe the share price will fall in the future. The short position makes profit if the share price falls but can also lose if the share price increases. The potential losses tied to shorting is theoretically unlimited. This is because the share price can rise indefinitely but can only fall to zero.

With a decent grasp on how shorting works, let’s discuss three notable shares on this list prior to earnings.

Domino’s Pizza (ASX.DMP)

  • Fair Value Estimate: $41 (60% discount at 30 March)
  • Rating: ★★★★★
  • Moat: Narrow

Domino’s is one of eleven companies that have remained in the most shorted companies pre-earnings. The shares have fallen over 80% since its COVID peak as investor sentiment has soured. Domino’s is the Australian master licence holder of the Domino’s Pizza brand. It also has operations in New Zealand, Japan, Singapore, Malaysia, France, Germany, Belgium, Luxembourg, Taiwan, Cambodia, and the Netherlands.

Domino’s enjoys a narrow economic moat, sourced from intangible assets and cost advantages. Master franchise agreements in regions including Australia, France, Germany, and Japan give Domino’s Pizza Enterprises the exclusive rights to the Domino’s brand – an intangible asset, in our view. These MFAs are long-dated, with Europe and Japan agreements extending beyond 2040.

A moat-worthy brand in the quick service restaurant industry permits better-than-average price increases or traffic gains, defending its operator’s profitability during periods of inflationary pressure. On this metric, Domino’s has a favorable track record, notwithstanding some challenges in recent years. In the core Australian market, same-store sales have grown 5% per year on average in the 10 years to fiscal 2025, ahead of minimum wage and Consumer Price Index growth of 3%.

Our analyst Johannes Faul has a $41 fair value estimate for narrow-moat Domino’s noting the shares are currently cheap. Turning around sales momentum is likely a multiyear exercise, but we believe the market is too pessimistic on the long-term growth opportunity. We estimate shares are pricing in only a few, if any, store openings and only moderate EBIT margin recovery.

Telix Pharmaceuticals Ltd (ASX.TLX)

  • Fair Value Estimate: $18 (18% discount at 17 July)
  • Rating: ★★★
  • Moat: None

Telix Pharmaceuticals has remained one of the most shorted companies pre-earnings despite a strong YTD performance. Telix is a developer of cancer imaging agents and therapeutics. It has a pipeline of products that target cancer cells with radiation for imaging and treatment. It earns most of its revenue from US sales of Illuccix, an imaging agent for prostate cancer.

Telix lacks an economic moat. Given low switching costs for doctors to adopt existing or newer competing products and limited intangible assets in the radiopharmaceuticals industry, we think Telix will have little to defend its position when faced with potentially stronger competition in the coming decade. It would likely require a broader portfolio of drugs with stronger patents for a moat.

However, we still expect Telix to generate high returns on capital at midcycle and attribute this to being a capital-light and high gross-margin business operating in a high-returning industry. The high product concentration risk means new competition for key products could significantly impact our forecast earnings.

Our analyst Brian Han maintains an $18 fair value estimate, and no-moat, Standard Capital Allocation, and High Uncertainty rating for Telix. Shares are undervalued and do not reflect the market share gains of Telix’s core imaging products. Current elevated reinvestment is also unlikely to persist in the long term.

We are likely more optimistic than the market about profitability improving as we see research and development costs related to clinical trials, patient recruitment, and preparation for commercial launches easing as pipeline products launch, and as Telix leverages its bolstered manufacturing and distribution.

Flight Centre (ASX.FLT)

  • Fair Value Estimate: $17.50 (30% discount at 17 July)
  • Rating: ★★★★
  • Moat: None

Flight Centre has remained in the top 20 most shorted shares quarter on quarter. FLT shares have fallen 18% year to date as margin pressures have weakened investor sentiment. Flight Centre is one of the world’s biggest travel agents, but it still generates substantial earnings in Australia and New Zealand. Unrivalled scale and brand strength in the domestic travel market have delivered buying power and pricing flexibility that resulted in high returns on capital. Flight Centre has a strong network of services that has driven solid end-user traffic and bookings over the past 20 years, but we do not believe this is sufficient to protect the company against online competitors over the next 10 years.

We do not believe Flight Centre Travel has an economic moat. Due to the discretionary nature of travel and high levels of operating leverage, earnings can be very volatile. Flight Centre’s significant scale and extensive store network have made the firm a key distribution channel for travel suppliers and generated cost advantages that enable it to offer competitive prices. However, with the threat from online competitors increasing, we believe physical stores are likely to lose relevance in the long term.

Our analyst Brian Han has a fair value of $17.50. Shares in the no-moat group remain attractive at current levels, trading 30% below our intrinsic assessment. The undervaluation is such that another $200 million buyback has been activated, following the completion of a similar amount only recently.

Critically, while the leisure unit is in a cyclical funk, the corporate unit’s resilience is continuing. In fact, we forecast corporate earnings to rise by double digits in fiscal 2026 and potentially enjoy further tailwinds, with a major Australian-based competitor in serious turmoil.

What is the takeaway?

Short sellers on the ASX have clearly shifted their interests ahead of earnings. While short interest fluctuates over time, the message to investors stays the same. Short seller data alone won’t tell investors who will win or lose.

It does highlight where expectations are being tested. Understanding the reasons driving short seller interest allows investors to add more pieces to the investing puzzle.

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