A lot of investors are betting that Dutch Bros is going to have some challenges in the coming months.
The drive-thru coffee chain, which went public in 2021, is the most “shorted” restaurant stock right now, at least as a percentage of the number of shares available for trade, according to Raymond James analyst Brian Vaccaro.
Overall, “short interest” in restaurant stocks increased 3.1% in the last two weeks of September, through Sept. 30.
By “shorting” stocks, investors are betting they will decline. While most investors bet on stocks to increase, investors who short stocks borrow the shares at their existing price and then buy them again after the price has gone down before returning the shares, thus profiting from the decrease.
Shorting shares often frustrates executives of publicly traded companies who argue that such investors are out to destroy companies by manipulating the market by deflating prices. But short interest is a good indication of investor concerns about a company or even a sector.
Restaurant stocks have underperformed in recent months, as Wall Street has grown concerned about restaurant sales given various economic challenges. If investors are increasingly concerned about a sector’s financial health, it just goes to reason that short interest would increase along with it.
Short interest has increased 4.9% in late September at large quick-service restaurants and 12.3% in growth concepts, according to Raymond James. But it has declined 1.8% among casual diners. QSRs have had higher valuations than casual-dining companies in recent months.
Here’s a look at the five most-shorted restaurant stocks right now, according to Raymond James, plus some other notable concepts. The percentage is the percentage of a company’s “float,” or the number of shares available to purchase, that are betting on its decline.
Dutch Bros (21.8%)
The drive-thru coffee chain has been a popular short for some time and that hasn’t changed. More than one-fifth of its available shares are sold short. The company, which has struggled to generate sales growth as it aggressively opened more units, has lost two-thirds of its value since surging past $75 per share shortly after its public market debut in 2021. It is down 16% this year.
Red Robin (17.6%)
The casual-dining burger chain has been on a roller coaster this year, surging in the first few months amid new management and improving performance. But it lost half its value since July. Short interest in investors has declined over the past three months, but a lot of investors are betting on a further decline.
Sweetgreen (15.6%)
The salad chain was a popular short a year ago, with nearly a quarter of its available shares short, then it lost two-thirds of its value between November and April. But then shares more than doubled come July and the shorts returned. Short interest increased to 15.6% from 11.4% six months ago.
Papa Johns (14.3%)
Short interest in the pizza chain has nearly quadrupled over the past three months. Three months ago, just 3.9% of Papa Johns shares were shorted. That’s up to 14.3% now. This, even though the stock has fallen 21% this year, much of it since late July.
Cheesecake Factory (13.8%)
Short interest in Cheesecake Factory, like Red Robin and much of the casual-dining sector, has declined, with short interest down 21% over the past three months. But it remains overall a popular company to bet against.
Other notable companies
A rapidly growing number of investors are betting against the breakfast-and-lunch chain First Watch, where short interest has doubled over the past month and tripled over the past three months. The least shorted stocks? That title belongs to McDonald’s, shorted on just 0.9% of shares, followed by KFC owner Yum Brands and Starbucks at 1.2% apiece.
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