One of Europe’s Most Hyped Stocks Faces a Record Hedge-Fund Attack

(Bloomberg) -- One of Europe’s most volatile and priciest stocks is attracting more interest from hedge funds than ever before.

The company in question is Ambu A/S, which is based in Denmark and makes single-use endoscopes. Short bets against it have jumped to a record. But at the same time, analyst price estimates show the stock could surge about 45 percent this year. So, who’s right?

One of Europe’s Most Hyped Stocks Faces a Record Hedge-Fund Attack

Almost 7 percent of Ambu’s share capital is now being shorted, which is the highest level since 2006, when IHS Markit started making the data available. As recently as October, short bets against the company amounted to just 1.7 percent of the stock.

On Friday, shares in Ambu rallied along with markets in general, and gained as much as 5.4 percent.

Meanwhile, not a single research analyst covering Ambu is advising clients to sell. The stock has four buy recommendations and three holds. Analysts are also making one of the most bullish predictions on record for the stock over a 12-month period.

One of Europe’s Most Hyped Stocks Faces a Record Hedge-Fund Attack

“It’s fair to assume that 2019 will be another volatile year for the stock,’’ Jesper Ingildsen, an analyst at DNB in London, said by phone. “It’s a stock that tends to divide investor opinion, with people taking very different views.’’

Ambu trades at about 75 times estimated earnings for its current calendar year. That’s the fourth-highest price-to-earnings ratio in the Stoxx Europe 600 index and compares with an average of about 15.

One of Europe’s Most Hyped Stocks Faces a Record Hedge-Fund Attack

The company’s fate is tied to its single-use endoscopes, which have achieved success amid fears that rival multi-use products pose contamination risks for patients. But the stock’s meteoric rise (up about 900 percent over 5 years, the second-best performance in the Stoxx Europe 600 index) has also left it vulnerable.

“There are investors out there who just look at the very high multiples the stock trades on and decide it’s too expensive, just based on that,’’ Ingildsen said. “Then there are investors who question whether single-use scopes will have the penetration rate that the rise in the share price suggests.”

One of Europe’s Most Hyped Stocks Faces a Record Hedge-Fund Attack

Last year, Ambu’s share price rose 41 percent. But that overall performance disguises a lot of turbulence. Ambu soared 147 percent through Aug. 16, and then slumped 43 percent in the last 4 1/2 months of the year, as growth rates failed to live up to market expectations.

This year’s potential share price triggers are the relative success of Ambu’s new product launches and the final result of a U.S. FDA report on contamination rates for non-single use endoscopes, Ingildsen said. And then the stock may run into volatility as the market calibrates its views to Ambu’s forecasts.

“It may well be that Ambu is adopting a less conservative approach to guiding,” the analyst said. “It will be interesting to see how that plays out with market consensus estimates this year.’’

©2019 Bloomberg L.P.