Nearmap share price: are investors preparing for a sell-off?

As Nearmap’s short interest passes 10%, we examine the current broker outlook – which stands in stark contrast to the company’s mounting short interest.

The headline is a provocative one. Yes. Yet the point is also a salient one: a significant portion of Nearmap’s stock is currently held short by investors and traders – according to ASIC’s most recent short data.

11.19% of its stock, to be precise.

This makes Nearmap (ASX: NEA) the tenth most shorted stock on the ASX, notes Shortman.

This comes after the company just recently finalised a US$3.5m technology acquisition from roof geometry company Pushpin. The Nearmap share price even rose 7% yesterday and though it pulled back today it is still up 83% YTD.

Nearmap is also overwhelming liked by analysts: with 85.7% of analysts rating the stock a BUY, according to Bloomberg Data.

Of the brokers covering the stock, Morgan Stanley currently has an OVERWEIGHT rating and a price target of $4.20; and Macquarie Wealth Management has an OUTPERFORM rating and a price target of $3.45 per share.

In fact, on the bearish end of the spectrum, Evans & Partners rate Nearmap (ASX: NEA) a NEUTRAL, with a price target of $3.07 per share. Even on this ‘bearish’ price target, analysts look to be expecting some 8% upside from here.

Growth looks to be the name of the game here. According to Bloomberg Data, analysts are expecting aggressive top and bottom-line growth from the fast-growing aerial imagining company in the coming years.

On the top-line, analysts are estimating Nearmap’s revenue to rise from $77.8m in FY19 to $100.5m in FY20 and $132.4m in FY21 – according to Bloomberg Data.

On the bottom-line, analysts expect the company’s adjusted earnings (EBITDA) to also rise significantly, forecasted to reach $8.4m in FY20 and 19.3m in FY21 – according to Bloomberg Data.

Finally, the company remains well capitalised, with $75m in cash and cash equivalents on hand. Though, the company was still loss-making in FY19.

Nearmap share price: musings on the short play

When looking at all this, it is interesting then that a significant portion of the market is expecting the stock to fall. That after all, is the point of taking a short position.

Indeed, Nearmap’s valuation is high – when compared to the market average and historical valuations, that is – with the company currently boasting a price-to-sales ratio P/S of 15.95x. Analysts, expect this ratio to soften in the coming years – falling in to 12.88x in FY20e and 9.77x in FY21e – also according to Bloomberg Data.

In saying that: expensive Australian technology stocks are hardly a new phenomenon.

As a recent Livewire article pointed out:

‘Australian high-growth stocks, which the WAAAX stocks are a part of, are now the most overvalued in the world. High-growth stocks are on average trading at a forward price-to-earnings ratio of 38.9x, which is now 65% above the global average.’

And though analysts are bullish, there are risks. Morgan Stanley flagged weak US growth, poor cross-sell sales and intensifying cash losses, as some key ones to Nearmap investors.

In saying that, the 11% short interest potentially suggests that the market is more concerned about these risks than analysts are.

The Nearmap (ASX: NEA) share price fell 1.75% today and currently trades at $2.81 per share.

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