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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.

Practise trading Australian tech stocks with an IG demo account now

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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