One of the standouts of today's morning trading session was Cerence, which logged a 17.1% performance and outperformed the S&P 500 by 17.1%. The Software stock is now trading at $17.99 per share and may still have upside potential because it is still -34.7% under its average target price of $27.55. Analysts have set target prices ranging from $17 to $65 dollars per share, and have given the stock an average rating of hold.
To understand the market's outlook on the stock, we can look at Cerence's short interest: the proportion of the fshare float that is tied to short positions. Behind each short position is an investor who believes that the stock will decline in the future. Here, the stock's short interest is 11.5% which means the outlook is split.
When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.
Another way to gauge the sentiment on Cerence is to look at the percentage of institutions that are invested in the stock. In this case, 98.9% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
Institutions have vast resources. If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
In conclusion, we see mixed market sentiment regarding Cerence because of its an analyst consensus of strong upside potential, a hold rating, a large percentage of its shares sold short, 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 CRNC:
The stock has trailing 12 month earnings per share (Eps) of $0.77
Cerence has a trailing 12 month Price to Earnings (P/E) ratio of 23.4 compared to the S&P 500 average of 15.97
The company has a Price to Book (P/B) ratio of 0.7 in contrast to the S&P 500's average ratio of 2.95
Cerence is a Technology company, and the sector average P/E and P/B ratios are 26.5 and 5.57 respectively