What Do Short Sellers Know About Home Depot?

• As the sector struggles, one leading specialty retailer has thrived and has rewarded investors.
• However, short sellers have bet heavily against this stock in the most recently reported period.
• The share price of this home improvement store operator has pulled back from a recent all-time high.

As many retailers struggle to find out if they still have a place in a world where fundamentals have changed drastically, Home Depot Inc HD has been one of the few that has not only survived but thrived. Last Month, Barron's featured the specialty retailer as one of only handful positioned to resist the surging popularity of e-commerce, a gale-force headwind for so many others in its sector.

And, good news for shareholders of this home-improvement superstore operator: The stock has been on a roll — not just up more than 20 percent this past year, but almost 200 percent higher in the past decade, which is about double the gain in the S&P 500 in that time. With little sign of another housing bubble on the horizon, and the summer remodeling and tropical storm season just underway, is there reason to suspect maybe this stock has run too far? Some investors appear to be thinking so.

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Between the May 31 and June settlement dates, this Atlanta-based big-box retailer saw the number of its shares short surge more than 85 percent to more than 20.68 million. That may represent just 1.7 percent of the total float, but it was a year-to-date high and more than double the level of short interest at the beginning of this year. At the average daily trading volume as of mid-June, it would take about five days to cover all short positions.

Rival Lowe's Companies, Inc. LOW announced layoffs during the two-week period, and Jim Cramer said he preferred Home Depot to Tractor Supply Company TSCO at the end of May.

Home Depot's share price ended the first two weeks of this month more than 2 percent higher, though that was still short of the all-time high of $160.86 hit back in late May. However, shares have given back that gain since the settlement date. The consensus recommendation of the analysts polled by Thomson/First Call is to Buy, and their mean price target is up at $171.27. That would be a new all-time high, assuming the short sellers don't turn out to be correct.