Cinemark Holdings is Being Targeted By Short Sellers

Short interest data is worth monitoring. Generally speaking, if a stock is being targeted by short sellers, it’s a high-risk investment.

In this report, we are going to discuss the short interest data on Cinemark Holdings Inc (CNK:US). Cinemark is an American movie theater chain. Currently, it has more than 500 cinemas across the US and Latin America. The company is listed on the New York Stock Exchange and has a market cap of around $2.02 billion at present.

High Short Interest

Looking at the short interest data here, two things stand out to us.

Firstly, short interest is relatively high. Currently, 24.79 million CNK shares are on loan. That represents about 23.12% of the free float.

Secondly, short interest has increased significantly in recent months. Three months ago, when the stock was trading near $10, the number of shares on loan was under 20 million. Since then, the number has risen by roughly 25%. In other words, as the stock has climbed, so has the level of short interest.

Lofty Valuation

This data suggests that short sellers don’t see the recent increase in the stock price as justified.

And looking at the fundamentals here, this makes sense. At the current share price, Cinemark has a forward-looking price-to-earnings (P/E) ratio of 52 – more than twice the market average. 

One major issue here is that the company has a mountain of debt on its balance sheet. At the end of 2022, long-term debt stood at $2.5 billion. By contrast, equity on the balance sheet was just $120 million. This debt could present challenges now that interest rates are much higher than they were.

Another issue is that the company’s recent performance has been underwhelming. Q4 revenue, for example, was down 10% year on year and below analysts’ estimates.

So, all things considered, it’s hard to justify a P/E ratio in the 50s.

Will the short sellers generate a profit here? That remains to be seen. However, history shows that, more often than not, short sellers get things right.