Kingfisher (LSE:KGF), the international home improvements retailer, is the most popular FTSE 100 stock among short sellers.
According to the Financial Conduct Authority, nearly 6% of its shares, with a current (11 September) value of £285m, have been borrowed in anticipation that its share price will fall. If it does, these investors will be laughing all the way to the bank.
To be honest, I’m not sure why these firms have such a negative view of the B&Q and Screwfix owner. It might not be the most exciting stock in the index, but if I had to pick one to short, I’d choose plenty of others before Kingfisher.
Like so many, it struggled during the pandemic when its share price reached a low of 126p (March 2020). Since then, it’s bounced back to 275p — an increase of 118%.
A resilient business?
Although the DIY sector has a certain amount of downside protection — during an economic slump people are less likely to move home and, instead, will spend money improving their existing properties — it does better when the housing market is booming.
And with the property market showing signs of coming out of its recent downturn, this could be good news for Kingfisher.
During the year ended 31 January 2025 (FY25), the company is forecasting an adjusted profit before tax (PBT) of £490m-£550m (FY24: £568m).
Analysts are expecting earnings per share (EPS) of 20.2p (FY24: 21.9p).
This implies a forward price-to-earnings ratio of 13.6. By historical standards, this is on the low side. It drops below 10 if the EPS forecast for FY27 (27.6p) is considered.
The stock also seems to be good for passive income. The same analysts are forecasting a dividend of 12.2p in FY25. If accurate, this implies a yield of 4.4%. This beats the average for the FTSE 100 of 3.8%.
The company hopes to grow by focusing more on its trade customers. They visit stores more often and spend more than retail shoppers. And it wants to improve its margin further by promoting its own brands more.
So why might the short sellers believe that Kingfisher’s share price is going to fall?
Not everyone’s cup of tea
It could be that they have doubts about the prospects for a housing market recovery, possibly due to lower economic growth than anticipated. The company itself considers this to be the biggest risk it faces.
Others might view the company as old-fashioned. It has a target for online sales of 30%, but at the moment it operates over 2,000 ‘bricks and mortar’ stores in eight countries. Internet retailers don’t pay property taxes which gives them a competitive advantage.
And from a logistical point of view, it’s easy for things to go wrong when operating from so many individual sites.
Final thoughts
Personally, I don’t understand the rationale of the short sellers.
I’m not necessarily saying I want to buy Kingfisher shares — I’d have to do some more research first — but I don’t see any obvious reasons why the shares are likely to struggle in the coming weeks and months. Okay, they are unlikely to perform like an exciting tech stock, but slow and steady sometimes wins the race.
The post Is it time to buy the FTSE 100’s most shorted stock? appeared first on The Motley Fool UK.
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See the full investment case
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
