3 heavily shorted shares in the S&P/ ASX200 to watch

Domino's Pizza Enterprises Ltd (ASX: DMP) is still being bet against by many in the market.

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Every day the corporate regulator ASIC publishes a list of what percentage of shares on issue companies on the S&P/ ASX200 (ASX: XJO) have shorted.

If a trader borrows a company's shares from a prime broker to short sell it means the trader is betting on the share price falling in the near future.

As such it's worth taking a look at what companies are being heavily bet against to get an idea why this may be, although shorters are not always right of course.

In fact they can be spectacularly wrong in their bets, for example the construction software company Aconex Ltd was heavily shorted just before U.S. tech giant Oracle made a takeover bid for it at a 44% premium to the last exchange traded price.

Here are three heavily short sold companies where traders may or may not be correct in their assumptions.

Bellamy's Australia Ltd (ASX: BAL) has nearly 11% of its shares shorted. Traders may be betting against the baby formula maker on valuation grounds, or in anticipation of its China sales slumping on the back of regulatory problems.

Domino's Pizza Enterprises Ltd (ASX: DMP) has 9.6% of its shares shorted as traders could be betting against it for a number of reasons. These include; valuation, problems in Japan or Europe, and a saturated market in Australia where regulators are turning up the heat on franchisors and the working conditions of fast-food employees.

Invocare Limited (ASX: IVC) is the funeral parlour aggregator and operator that was sold down in 2018 as its profit growth missed analysts' forecasts substantially. However, it claims to be back on track thanks to a program of reinvestment, while shorters must think it still has some bad news up its sleeve.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Bellamy's Australia, Domino's Pizza Enterprises Limited, and InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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