Here’s Evidence Investors Have No Confidence in Facebook

No large company is getting more short-selling interest than Facebook (NASDAQ:FB), a clear indication that investors have no real confidence in the social network’s falling stock recovering anytime soon. According to Bloomberg numbers, short interest in Facebook has reached 5.9 percent of shares outstanding. None of the Standard & Poor’s 500 Index companies with at least $50 billion in market capitalization has short interest higher than 3 percent. Visa (NYSE:V) has the highest short-selling ratio among the 52 biggest S&P 500 companies at 2.95 percent, and is followed by Disney (NYSE:DIS) at 2.56 percent.

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Facebook is not a part of the S&P 500 (NYSE:SPY). The company, which has lost $29 billion since its initial public offering last month, has a market value of about $61.6 billion as shares have fallen more than 30 percent from their offering price of $38. Facebook and its underwriters led by Morgan Stanley (NYSE:MS) have been under fire for increasing the number of shares to be sold in the IPO by 25 percent days before the debut and also pushing up the offering price to the highest possible mark of the range. At the time of the IPO the company was valued at 107 times reported earnings in the past 12 months, but its stock has only fallen since.

“Facebook is one of those companies whose future potential is unknown and unknowable,” Ohio-based money manager Robert Stimpson told Bloomberg. “The stock is expensive. The short interest might also reflect a bet that there is more bad news to come and Facebook will be punished.”

In last week’s trading action, shares of Facebook were as high as $27.61 on Monday and hit a new rock bottom low on Wednesday of $25.52, or a drop of 7.5% due to heavy selling pressure. Friday, shares of Facebook closed up 3% in what appeared to be a pre-weekend short covering. Will shorts return in the week ahead?

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