Many sound S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) companies often find themselves heavily targeted by short-sellers.
Are these two ASX 200 growth shares deserving of such targeted shorting or will the shorters get burned?
1. Zip Co Ltd (ASX: Z1P)
Zip currently has a total short aggregate of approximately 9.35%.
The company may not be the leading buy now, pay later player but Zip has shown sound growth across the board, continued momentum in merchant growth, an initiative in mergers and acquisitions, and produced in-house innovative products.
In a recent Goldman Sachs report covering Afterpay Ltd (ASX: APT), analysts commented that "recent lead indicators suggest APT continues to grow steadily while competitor momentum is stalling". The report highlighted that "APT and Zip Co remain the dominant buy now, pay later players with Klarna appearing to stall in momentum in the early part of April and its other competitors showing limited signs of gaining meaningful traction".
I also believe that Zip, much like Afterpay, will be able to demonstrate its significant exposure to online spending which is highly beneficial in the current environment.
Zip is also comprised of many other smaller businesses including its partnership with Payflex in South Africa (Zip holds a 25% strategic stake); QuadPay in the USA (Zip holds a 15% strategic stake); Spotcap, a leading SME credit decisioning platform; and Pocketbook, a budget planner and personal finance software.
2. Nearmap Ltd (ASX: NEA)
Nearmap currently has a total short aggregate of approximately 7.40%.
The company's share price has finally found a bottom after a devastating start to 2020. This sharp downturn was triggered by an early FY20 market update where it lowered its full-year annualised contract value guidance from between $116 million and $120 million to a new range of $102 million and $110 million. Nearmap was arguably priced to perfection and downgrading its guidance was unacceptable given what was already priced into its valuation.
The company did recently provide a more upbeat COVID-19 business update. The update highlighted that Nearmap has not seen any material impact on current trading conditions, while it is also undertaking cost management initiatives to preserve cash, maintain a strong balance sheet and maximise flexibility for the future without the need for additional capital.
Nearmap was unable to provide an outlook or guidance. It did note that while the impact of COVID-19 remains uncertain for customers, Nearmap's content helps businesses adapt to a need for conducting more work remotely. To support many of its customers, Nearmap is providing enhanced content for a limited period to help customers maintain productivity while staying safe and working flexibly.
I believe the Nearmap share price has priced-in most of the negative news. While COVID-19 will continue to significantly impact the global financial markets, the Nearmap business is showing tenacity and versatility in today's uncertain climate.
