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According to shorttracker.co.uk, there’s a big short interest in J Sainsbury (LSE:SBRY) right now. In other words, hedge funds think shares in the FTSE 100 retailer are set to fall.
Around 7% of the company’s outstanding shares are currently sold short and at least five firms are betting against the stock. So should investors be greedy, fearful, or neither?
Why Sainsbury’s?
It’s worth noting that, according to ShortTracker, there isn’t a substantial short interest in Tesco. So hedge funds aren’t betting against UK retailers across the board.
There are a couple of reasons Sainsbury’s might be a more attractive short opportunity. One of the most obvious is the firm’s operating margins have been consistently lower over the last few years.
Another is the fact Argos makes up around 15% of the overall company’s sales. That gives it more exposure to discretionary spending than Tesco, which has a greater focus on everyday staples.
By itself, there’s nothing wrong with that. But it does mean Sainsbury’s could be hit harder if consumer spending comes under pressure – and there are signs this is starting to happen.
Why now?
The latest inflation data for the UK shows prices are up 3.8% in July from where they were a year ago. And one of the key reasons for this was a substantial increase in food prices.
That’s a potential concern for businesses like Argos. People can’t easily cut back on food spending, so if that takes up a greater share of their household budget, something else has to give.
Argos has been staging something of a comeback recently. After posting a 2.7% decline in the previous year, sales grew 4.4% during the first six months of 2025.
I think the possibility of this growth stalling could well be a big part of why hedge funds are betting against the FTSE 100 retailer. But long-term investors might have different priorities.
Long-term investing
The possibility of earnings growth faltering as consumer spending weakens is definitely a risk. But long-term investors have a big advantage over their short-term counterparts.
Selling short depends not only on being right, but the share price moving soon enough. If – for any reason – Sainsbury’s shares go up in the near term, being short the stock could be expensive.
For long-term investors, on the other hand, there’s time to wait for a recovery if the stock goes the wrong way. And in the case of Sainsbury’s, there’s a 4.3% dividend on offer in the meantime.
In recent years, the firm’s paid out in dividends more than it’s generated in net income. But its distributions are well-covered by its free cash flows, so I don’t see an immediate threat here.
A buying opportunity?
When a stock has a big short interest, it can sometimes be a good time to consider buying. If the share price rises, short sellers can be forced to cover their positions, causing the shares to surge.
That’s why I use ShortTracker to keep an eye on the short interest around UK stocks. And it’s something I think investors in general would be wise to pay attention to from time to time.
Ultimately though, it’s not the most important thing when it comes to finding stocks to buy. And I think there are better opportunities for UK investors to consider at the moment.
