One of the standouts of today's morning trading session has been Chewy, which logged a -1.9% drop and underperformed the S&P 500 by -1.8%. The Internet Retail stock is now trading at $34.71 per share and is -22.68% below its average target price of $44.89. Analysts have set target prices ranging from $24 to $67.75 dollars per share, and have given the stock an average rating of buy.
The market is more pessimistic on Chewy, because its short interest -- meaning the percentage of its shares that are being shorted on an expectation of a price decline -- is quite high at 41.4%. The float includes only shares that are available for public trading, and excludes preferred shares held by insiders.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Chewy, institutional investors own 100.4% of the shares, which indicates they have a very high stake in the company. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in CHWY, it probably means they believe it is a solid investment choice.
But it could also mean they are buying up shares in an effort to acquire the company or to get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
To sum up, Chewy is probably the subject of mixed market sentiment because of its an analyst consensus of strong upside potential, a buy rating, an unusually large proportion if its shares sold short and, and a significant number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.
Here's a snapshot of some important facts to keep in mind about CHWY:
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The stock has trailing 12 month earnings per share (Eps) of $-0.23
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Chewy has a trailing 12 month Price to Earnings (P/E) ratio of -150.3 compared to the S&P 500 average of 15.97
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The company has a Price to Book (P/B) ratio of 124.9 in contrast to the S&P 500's average ratio of 2.95
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Chewy is a Consumer Cyclical company, and the sector average P/E and P/B ratios are 24.11 and 3.11 respectively
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