Leading stock brokerage Futu Holdings Ltd. (NASDAQ:FUTU) has been charging ahead lately, making big bucks off its core audience of mostly Chinese investors buying surging U.S.- and Hong Kong-listed stocks. The company strutted its stuff once again on Wednesday, as it reported strong double- and even triple-digit gains for most of its major business metrics, boosted by rallying stocks markets in the U.S. and Hong Kong.

Futu's own shares rallied 6% on Wednesday after the announcement, nearing an all-time high reached in 2021 when U.S.-listed Chinese stocks were surging. The company revealed that part of its bounty during the second quarter came from a spike in its business lending shares to short sellers. While it didn't specify which companies traders were shorting, we suspect many were probably U.S.-listed Chinese stocks that are familiar to many of Futu's customers but are relatively unknown to most other U.S. stock traders.

That brings us to the question of whether short sellers may be betting on Futu's own stock to undergo a correction after its latest run-up. While we don't know if Futu makes its own shares available for short sellers, the stock appears to be a growing favorite among such investors betting on a correction. Nearly 2% of its publicly listed shares are currently being traded by short sellers, more than double the less than 1% being shorted back in April, according to data from Bloomberg.

Analysts are typically quite bullish on the stocks they cover, often setting price targets that are 20% to 30% higher than the actual prices. That probably means Futu's stock has run up so much recently that the analysts haven't had time to raise their price targets, even though most are still telling investors to buy the shares. Indeed, Futu's stock is up 120% so far this year as investors applaud its big gains. Following the run-up, the stock now trades at a price-to-earnings (P/E) ratio of 30, well ahead of the 23 for UP Fintech (TIGR.US) and a meager 12 for Webull (BULL.US), which have similar profiles targeting Chinese investors living abroad.

Having given our thesis for why Futu's stock may be due for a correction, we'll take a deeper dive into its latest earnings report, which really does look quite impressive. The company's revenue rose 70% year-on-year to HK$5.31 billion ($680 million) during the quarter, which looks strong, but was also notably down from the 81% growth it reported in the first quarter. Company officials pointed out that trading sentiment took a hit in April, when U.S. and Hong Kong stocks briefly tanked as Donald Trump rolled out a wide range of tariffs on U.S. trading partners.

In one notable trend, Futu's trading volume for U.S. stocks, which accounts for three-quarters of its total, rose 19.7% quarter-on-quarter, which is what you would expect in such a bull market. But its volume for Hong Kong stocks, which account for most of the other trading volume, actually fell 9% quarter-on-quarter. Futu blamed that decline on waning investor interest in the growing number of Hong Kong-listed tech stocks, many of which previously would have made U.S. IPOs before China-U.S. tensions began to flare.

Futu also said it achieved a relatively major milestone during the quarter as more than half of its total funded accounts, which refers to paying customers, were for clients outside of its home base of Hong Kong. The company's number of funded accounts rose 41% year-on-year in the second quarter to 2.88 million. While Futu doesn't break down funded accounts by market, remarks by officials suggest that Hong Kong and Malaysia are its biggest markets, followed by the U.S. and Singapore, and lastly Japan and Australia.