Why Is CAT Falling Today?

With a sudden -3.2% drop to $278.17, Caterpillar has Wall Street wondering if its shares will keep moving past its target price of $267.91. With an average rating of hold, and analysts assigning target prices from 175.0 to 350.0 dollars per share, investors will be betting heavily on the Heavy Machinery stock's next move.

It seems the market sentiment regarding Caterpillar is mostly optimistic, since it has a short interest of only 2.0%. This is the percentage of the share float that is being shorted by investors who are hoping the stock's price will decrease in the future.

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 Caterpillar, institutional investors own 71.4% 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 CAT, 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.

Overall, there is negative market sentiment towards Caterpillar because of an analyst consensus of little upside potential, a hold rating, an average amount of shares sold short, and an average number of institutional investors. Investors should not base their decisions on market sentiment only, they should also be aware of a stock's fundamentals before committing.

At a glance, here are some essential statistics you may want to know about CAT:

  • It has trailing 12 month earnings per share (EPS) of $17.64 per share

  • Caterpillar has a trailing 12 month Price to Earnings (P/E) ratio of 15.8 while the S&P 500 average is 15.97

  • The company has a Price to Book (P/B) ratio of 6.91 in contrast to the S&P 500's average ratio of 2.95

  • Caterpillar is a Industrials company, and the sector average P/E and P/B ratios are 22.19 and 4.06 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.