No one could ignore American Electric Power's price drop during afternoon trading session, as the stock fell to $83.04, logging a -1.0% underperformance of the S&P 500. The stock is still trading within range of its average target price of $86.59, which may prove to be a resistance point to further declines. Analysts have given the Electric Utilities stock target prices ranging from 75.5 to 99.0 dollars per share, with an average rating of buy.
The market seems to share this optimistic view, since American Electric Power has a short interest of only 1.6% (this is the percentage of the share float that is being shorted). Each short position represents an investor's expectation that the price of the stock 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 American Electric Power, institutional investors own 78.4% 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 AEP, 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, American Electric Power is probably the subject of mixed market sentiment because of an analyst consensus of some upside potential, a buy rating, a very low short interest, and an average 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 AEP:
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The stock has trailing 12 month earnings per share (EPS) of $4.36
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American Electric Power has a trailing 12 month Price to Earnings (P/E) ratio of 19.0 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 1.73 in contrast to the S&P 500's average ratio of 2.95
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American Electric Power is a Utilities company, and the sector average P/E and P/B ratios are 17.53 and 1.71 respectively
