Merchants Bancorp reports Q2 results today against a backdrop where short sellers have been quietly retreating — yet options traders retain a cautious tilt that keeps the setup from feeling fully clean.
The most notable structural shift in the lending market is how much short conviction has faded. Short interest dropped sharply in mid-July, falling from around 2.2 million shares in early July to roughly 1.54 million — a decline of nearly 30% — before creeping back up about 2.5% over the past week to 3.4% of the free float. That partial rebuild is worth watching but doesn't reverse the broader retreat. Borrow costs have eased alongside it, now running at just 0.43%, down 16% on the week, and availability is ample at 249% — meaning there are more than twice as many shares available to borrow as are currently shorted. There is no squeeze pressure here. Options positioning is more defensive than that picture implies: the put/call ratio is 1.13, below its 20-day average of 1.35, suggesting that despite elevated put volumes relative to market norms, the most aggressive hedging from earlier in the month has unwound heading into the print. The stock is down 2.5% over the past month to $48.77, with a modest 0.8% bounce on Monday.
The analyst community is cautious but not bearish outright. Raymond James downgraded to Market Perform on July 1 — a meaningful signal given the prior Outperform rating — while Morgan Stanley maintained its Equal-Weight stance and nudged its target up to $49, essentially in line with where the stock trades. The consensus sits at hold, with a mean target of $53.50, implying modest upside of roughly 10%. Bulls point to strong deposit growth — certificates of deposit and brokered accounts up 18% in the prior quarter — alongside a respectable ROA of 0.94% and ROTCE of 10.6%. Bears counter that net interest income has been slipping, falling 1% quarter-on-quarter and missing consensus by 2%, with net interest margin under pressure from declining earning assets. At a PE of roughly 9x and a price-to-book near 1x, valuation offers a floor argument, but quality metrics remain weak: the ORTEX stock score's quality pillar sits at just 25, reflecting a low Piotroski F-score and near-zero ROCE.
One ownership detail adds texture. BlackRock added over 2.1 million shares in the most recent reported quarter, lifting its stake to 8.8% — a substantial incremental commitment from a passive-to-active manager that signals the stock has moved onto more institutional radars. Set against that, CEO and Chairman Michael Petrie sold nearly 39,000 shares across three transactions in late January and early May, raising just over $1.8 million at prices between $41 and $47. The insider activity is net negative over the past 90 days at roughly $2.7 million in sales, though the sales were spread out and at prices below today's close, limiting their signalling weight.
Earnings history adds one caution flag. The April 28 print triggered a 9.6% single-day drop and a further 6.9% decline over five days — the kind of move that explains why some protective positioning remains in the options market even as short sellers have pulled back. Today's print will test whether net interest income has stabilised and whether deposit momentum is sufficient to reassure a Street that has turned more neutral on the name.
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