One of the most heavily shorted shares on the ASX in construction project software business Aconex Ltd (ASX: ACX) has climbed 5% in early trade today and 30% over the past month despite the company releasing no news to the market.
The rapid rise of the share price may be pressuring short sellers to buy stock back in order to close out bets on the price falling, which is an effect that creates additional buying or upward pressure on a stock price.
According to the latest ASIC data more than 15% of the stock is short sold, which means more than 1 in 7 shares on issue will eventually need to be bought back by speculators who originally borrowed the shares to sell on market.
Many of those speculators will be in the money as even though the stock is up 30% over the past month it is still down 33% over the past year after a series of profit warnings and disappointing trading updates.
Outlook
The company remains on a sexy valuation relative to its historical earnings and there's a lot of strong growth priced into today's share price of $4.50.
This means many of the short sellers are likely to wait until Aconex's next trading update before deciding what to do with their positions as Aconex could well disappoint the market again.
For the full financial year ending June 30 2017 the company expects to post EBITDA of $15 million to $18 million on revenue of $160 – $165 million, with the company boasting a market value around $860 million. Clearly, a lot of expectation for strong multi-year growth is built into the company's share price at today's valuation and the shares are likely to remain volatile over the years ahead for multiple reasons.
Aconex is a company higher up the risk scale that is not for the feint-hearted investor, so if you're looking for the best technology shares to deliver reliable risk-adjusted returns you might be better off starting with the more established companies such as Hansen Technologies Limited (ASX: HSN), or financial software market leader Iress Ltd (ASX: IRE).
