I honestly believe the shorter do not think the company will fail. On the contrary they think it is fundamentally sound. What they are doing is preying on the nerves of investors/traders with the negative stories an using that as a perfect short-term strategy. Their net short position is probably a lot less than it appears and objective is to load up at a very attractive price ready for the turnaround.
My prediction is when they let go this will rocket higher. People will say there are few turnaround stories a lower price is for good reason. I would agree with that mostly but when you look at it most of those companies that fail to turnaround are losing money - not investment grade.
Those companies that do in fact earn money often turnaround. Take Cochlear for example, a fundamentally sound company that fell prey to heavy shorting on a fear monger campaign about competition. Its share price halved in no time. But it kept delivering results, some not so good but profitable nonetheless. Stories stop and within a year its share price virtually doubled - a turnaround story because it is basically a sound company not one losing money.
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