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Hedge Funds Step Up Bets Against Jeweler Pandora After Earnings Selloff

Updated on
  • Bets against Pandora’s shares reach 11% of free float
  • Hedge fund AQR Capital has doubled short postion in two months

Hedge funds betting against Pandora A/S have continued to build their short positions after the Danish jewelry maker last week reported earnings that missed estimates.

More than 11 percent of the free floating stock is now being shorted, according to data by IHS Markit. Before second-quarter results were reported on Aug. 8, bets reached about 8 percent. A year ago, just 0.3 percent of the stock was used in short bets.

Pandora’s shares trade ex-dividend on Aug. 15. Sometimes short interest spikes in connection with dividend payments, but according to Simon Colvin, an analyst at Markit in London, the increase in short interest in Pandora points to a “directional” position.

Pandora fell 14 percent on earnings day as hedge funds speculating against the Danish company emerged victorious over analysts overwhelmingly advising their clients to buy the stock. Chief Executive Officer Anders Colding Friis spent the day trying to reassure investors, but acknowledged that the all-important U.S. market will continue to be a challenge. He also said a broad-based economic recovery in the U.S. wasn’t translating into healthier sales.

“Those who are concerned about Pandora, or who are shorting the stock, are mostly focusing on the U.S. market,” Kristian Godiksen, an equity analyst at SEB, one of Sweden’s biggest banks, said in a phone interview. “And it’s clear that if Pandora had reached a saturated level as a brand, the U.S. would be one of the first markets in which it would show up.”

Pandora fell as much as 3.6 percent, or 24 kroner, on Tuesday. Even adjusting for the 9-krone dividend, the company was the day’s worst performer in Denmark’s benchmark index.

One of the hedge funds stepping up bets against Pandora is AQR Capital Management, according to filings to the Danish Financial Supervisory Authority. The day after Pandora’s earnings, the Greenwich, Connecticut-based fund increased its short position to 1.5 percent of the share capital -- up from 1.4 percent on Aug. 3 and more than double the level it had two months earlier. The fund didn’t return a call seeking comment.

Some analysts are starting to take a more cautious view on Pandora. Carnegie’s Lars Topholm cut his recommendation on Aug. 14 to hold from buy. That triggered a share decline of as much as 4 percent. But 15 of the 18 Pandora analysts tracked by Bloomberg are still advising clients to buy. What’s more, the average analyst price target is about 50 percent above the current price, which is among the biggest gaps in the Stoxx Europe 600 Index.

Pandora’s market value has slumped almost 30 percent this year. By comparison, the Copenhagen benchmark index has gained about 15 percent, while the benchmark European index is up 4 percent.

According to Godiksen at SEB, investors are reading too much into the U.S. development and ignoring the fact that Pandora is doing well elsewhere in other regions. Even though the U.S. “is a tough market for Pandora,” it would be unwise to extrapolate the development there to the rest of the world, where conditions are different, he said.

In the U.S., Pandora started as a company that only sold charms and bracelets, operating through non-branded stores. “To some extent Pandora is only moving away from that in the U.S. now,” Godiksen said

“Pandora is developing very well in other countries, for example China, Italy and Australia,” the analyst said. Pandora will also grow as the company rolls out own-branded stores in new markets, he said.

“The beauty of Pandora’s concept is that the company has been able to introduce the same products across different geographies without having to change them,’’ Godiksen said.

As of Tuesday, the lowest price target set by analysts covering Pandora (of those tracked by Bloomberg) was 752 kroner, courtesy of Goldman Sachs. The highest is held by JPMorgan Chase and SEB, which both target 1,200 kroner. Pandora shares closed at 660 kroner on Aug. 14.

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