The Aconex Ltd (ASX: ACX) share price has been a hot topic among the investing crowd in recent days. On Tuesday, the ACX share price soared 8.2%, and then rose another 7.3% on Wednesday (although they did climb as much as 9.4% during the session). They're down 3.3% today but are still showing a gain of 11% since the beginning of the week.
Indeed, Aconex is a business that receives plenty of attention. On the one hand, it has the potential to generate significant growth in the long run, which powered the Aconex share price's rampant run between late 2014 and mid-2016 (over which time it rose more than 420%).
On the other hand, it is still generating only a tiny profit compared to its seemingly lofty market value: It is guiding for operating earnings (EBITDA) of around $16.5 million this year, compared to a market value of around $760 million. It also trades on a price to sales ratio of 4.7 times, based on forecast revenue of around $162.5 million for the year.
Although there is a lot to like about the business itself, and the software-as-a-service (SaaS) cloud platform that it provides to the construction industry, there are a lot of investors short-selling the company's shares because of its valuation. That is, many individuals are betting on the company's share price falling from its current level, eager to take advantage of the market's lofty expectations for the business' prospects.
It's possible that the sharp run-up in Aconex's share price this week has been driven by these 'shorters' partly covering their positions, effectively taking their profits from the table after what has been a very large fall in the Aconex share price since July last year. Even after this week's rebound, for instance, the shares are still trading 56% below their 52-week high price of $8.75.
Nevertheless, the short interest in Aconex is a concern and could continue to weigh on the company's share price, at least in the near-term. While many bearish investors are likely still sceptical of whether or not Aconex will even hit its most recently revised earnings targets, more risk-averse investors may want to steer clear, for now.
That said, it could certainly be worth a closer look at these price levels for those investors who are prepared to take on some extra risk, and who believe Aconex can surprise to the upside.
