Hedge funds are circling two of the buzziest stocks on the Australian sharemarket just as retail investors, who were largely responsible for pumping up their share prices, have come down with a case of the jitters.
Depending on when an investor first traded imaging software company 4DMedical, or defence tech firm DroneShield, they might have made big money or have been left nursing brutal losses, such is the boom-and-bust trajectory of two of the ASX’s most hyped-up companies.
An investor who bought shares in 4DMedical in mid-March 2025 for about 35¢ a pop and then made a timely sale when the stock peaked at $7.55 a year later would have booked a 2000 per cent gain. But since then, the shares have dropped about 40 per cent to closed at $4.40 on Monday.
Similarly, DroneShield carved out a roughly 500 per cent gain on the ASX in the 12 months from October 2024, making them the definitive trade for small-cap fund managers in 2025. They have since plunged nearly 70 per cent from their October peak of $6.70 to close at $2.18 on Monday.
The pair have been a regular fixture on the lists of most traded stocks by retail investors as punters were enticed by the possibility of making life-changing returns. But today, they are two most targeted stocks by hedge funds on the ASX.
Plato Investment Management’s Dave Allen opened a short position – which makes money when a stock falls – on 4DMedical on Monday after the company triggered 16 red flags on his hedge fund’s internal system. A stock that triggers eight or more red flags typically signals that a company will underperform the market by 20 per cent over the next year.
“At a market capitalisation of around $2.5 billion and revenue of less than $6 million, the stock makes SpaceX look cheap,” Allen said of 4DMedical. The hedge fund manager was comparing the stock to Elon Musk’s rocket company, whose shares have plummeted below its IPO price of $US135 after soaring above $US200 in its first few days of trade.
“Anything less than flawless execution and rapid commercialisation will see 4DMedical’s share price come under intense pressure,” he added.
Plato has also been building a short position against DroneShield, which has 11 red flags, since September. While Allen said he respected the new chairman Hamish McLennan, who also helms real estate classifieds giant REA Group and Kiis FM owner ARN Media, the company’s calendar guidance for 2026 was 20 per cent below expectations.
He added that two of the four sell-side analysts to cover the stock in July (Ord Minnett and Jeffries) effectively rated the shares as a sell, whereas none of them did earlier this year.
Source: https://www.afr.com/markets/equity-markets/hedge-funds-circle-hyped-up-asx-stocks-that-make-spacex-look-cheap-20260810-p60mul