(Bloomberg) -- Roku has become one of the most expensive short positions in the U.S., and that’s still not stopping bets that shares will reverse a recent surge.
More than 1 million Roku shares have been shorted since Nov. 8, when the streaming device maker’s first report as a public company led its stock price to double over the next three days. Short positions in Roku now comprise 31 percent of its float, according to financial analytics firm S3 Partners.
Increased demand for short positions has driven their borrowing cost above 50 percent, compared to 13 percent on Nov. 1. Just 30 stocks in the Russell 3000 Index have borrow rates above 20 percent, S3 head of research Ihor Dusaniwsky said in an email interview.
"Short sellers willing to pay over 20 percent to finance their short positions are showing a very strong conviction that the stock price is going to decrease," he said. Dusaniwsky expects short interest to keep rising as traders continue to build their positions, anticipating a sharp pullback once buy demand wanes.
The stock remains up 115 percent since Roku’s report on Nov. 8, and up 188 percent from the Sept. 27 IPO price of $14. A licensing agreement with TV-maker Funai Electric, a Black Friday discount on its new streaming stick and 13F disclosures by new holders have also boosted the stock this week.
At least one Roku analyst agrees that shares may be overvalued. Oppenheimer’s Jason Helfstein on Nov. 14 warned in a note that Roku’s trading pattern has decoupled from fundamentals due to a limited float and high short interest. Roku this week became the most expensive publicly-traded, Internet-based company on platform revenue or gross profit, said Helfstein, who is the the only analyst on the Street to rate it a sell.
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