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The Mycronic Chronicles: Shorts, Analysts Face Off on Hot Stock

(Bloomberg) -- In a year in which big gains have been hard to come by for investors in European technology stocks, Mycronic AB stands out: The maker of equipment used in the production of smartphone displays has surged 27 percent, one of the industry’s best performances.

Yet a sizable group of speculators is betting the volatile market for some of the Swedish company’s products is peaking. Some 21 percent of Mycronic’s shares available for trading have been sold short, according to data from IHS Markit Ltd., one of the highest levels among the 362 stocks in the Stockholm All-Share Index.

The Mycronic Chronicles: Shorts, Analysts Face Off on Hot Stock

Mycronic makes machines called mask writers that are used to generate microscopic patterns on glass plates that then act as templates for the production of high-resolution displays. The company has a market share of almost 100 percent in the business, which accounted for 53 percent of sales last year even after Mycronic broadened its offering to reduce its reliance on the operation. The other 47 percent of sales came from equipment used in making electronics, such as mounting components onto circuit boards or assembling camera modules for driver assistance in cars.

Any slowdown in the market for mask writers would therefore hit Mycronic’s results, and share price, which is what the short sellers are betting on, said Viktor Westman, an analyst at Redeye. While market dynamics and customer behavior mean that they may be proven right at some point, Westman said that there are still "several important drivers of mask-writer demand, for example the replacement market.”

According to the analyst, that indicates that there won’t be the same kind of collapse in demand as Mycronic for mask writers as the ones seen in 2006-2013. Back then, Mycronic sold almost no systems following a boom from 2003 to 2005, he said.

The Mycronic Chronicles: Shorts, Analysts Face Off on Hot Stock

Most investors for now are siding with the views of analysts such as Westman rather than with those betting against Mycronic. This year’s 27 percent gain compares with declines in both the Stockholm All-Share and the Stoxx 600 Technology Index. Over the past decade, betting against Mycronic also hasn’t paid off: The stock has jumped more than 2,000 percent, or 41 percent a year.

“Mycronic has a solid order book and a strong offer within both Assembly Solutions and Pattern Generators, and as our long-term growth targets and guidance for the year show, we don’t share the view of the short sellers,” Tobias Bulow, the company’s head of investor relations and corporate communications, said by email. “The market is developing well for both of our business areas.”

The Mycronic Chronicles: Shorts, Analysts Face Off on Hot Stock

What’s more, analysts at Danske Bank A/S and Carnegie Investment Bank -- the only firms to follow the company and that are tracked by Bloomberg -- say the stock has more to give, forecasting share-price gains of 31 percent and 12 percent, respectively, in the coming 12 months. The average price target for Mycronic shares has been higher than the share price since the autumn of 2016.

The Mycronic Chronicles: Shorts, Analysts Face Off on Hot Stock

So what’s the reason for the differing views on the company? “Short sellers have a shorter time horizon," Westman said.

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