The Betmakers Technology Group Ltd (ASX: BET) share price has endured a tough couple of weeks, down more than 25% from the close of 12 September to the present day.
Some of its peer companies are also down during this period, including Ainsworth Game Technology Limited (ASX: AGI), which has fallen 7%. Cettire Ltd (ASX: CTT) has suffered a 22% loss.
More broadly, the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) has also dipped more than 7% during this time, and the S&P/ASX 200 Index (ASX: XJO) has fallen by a similar amount%.
The correlation between Betmakers' fall and that of the wider market is undeniable, but there could also be other underlying forces at play here. Let's investigate what those might be.
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Interest rates rise, and shares fall
The first thing which might be going on is that cyclical shares like Betmakers are generally the first to be discounted when investor sentiment starts heading south and rise again when positive sentiment returns.
The omen that seems to have spooked investors is rising interest rates in the US, which puts pressure on the valuations of companies downwards.
This is especially true for companies considered more speculative, such as tech start-ups and other companies still working toward reaching breakeven profitability. This includes companies such as Betmakers, which reported a $1.62 million loss year to date in its most recent quarterly activities report in July.
Additonally, in its full-year results released last month, the company reported a 371% increase in revenue to $91.7 million, but its earnings before interest, tax, depreciation, and amortisation (EBITDA) loss was almost as much at $86 million. The Betmakers share price fell 3.7% the day the results were released on August 26 and has been struggling ever since.
Short-sellers pile on
Data also suggests that short-sellers believe Betmakers could fall to lower levels. The Fool reported that the company's short interest stood at 13.5% on 19 September.
Short interest is another litmus test of investor sentiment, with higher levels reflecting a more pessimistic expectation that the company's shares will perform poorly in the future.
Putting this 13.5% figure into perspective is that the typical short interest for stocks in the S&P 500 Index (SP: .INX) has ranged between 1.6% and 2.9% over the last decade.
Thus, it seems that investors are parking their cash into companies involved in more defensive sectors with an established history of delivering earnings growth throughout the economic cycle.
Another popular option is to invest in shares that pay considerable dividends to help offset portfolio devaluation during a downturn.
Betmakers share price snapshot
In early trading on Tuesday, the Betmakers share price is up 2.3% to 31.2 cents.
However, Betmakers shares are down around 62% year to date. Meanwhile, the ASX 200 is down 15% over the same period.
The company's market capitalisation is $285.05 million.
