Madrigal Pharmaceuticals (MDGL) Stock Drops – What's Behind the Decline?

Tumbling to a price of $245.69 during today's afternoon trading session, shares of Madrigal Pharmaceuticals are now -26.42% below their average target price of $333.92. Does this mean the stock will reverse course? Analysts are giving MDGL an average rating of buy and target prices ranging from 155.0 to 407.0 dollars per share.

The market, on the other hand, is a bit more pessimistic. Madrigal Pharmaceuticals's short interest -- meaning the percentage of its share float that is being shorted on an expectation of a price decline -- is quite high at 20.9%. The float includes only shares that are available for public trading, and excludes preferred shares.

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 Madrigal Pharmaceuticals is to look at the percentage of institutions that are invested in the stock. In this case, 99.3% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.

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.

To sum up, Madrigal Pharmaceuticals is probably the subject of mixed market sentiment because of an analyst consensus of strong upside potential, a buy rating, an unusually large proportion 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 MDGL:

  • The stock has trailing 12 month earnings per share (EPS) of $-19.99

  • Madrigal Pharmaceuticals has a trailing 12 month Price to Earnings (P/E) ratio of -12.3 compared to the S&P 500 average of 15.97

  • The company has a Price to Book (P/B) ratio of 12.05 in contrast to the S&P 500's average ratio of 2.95

  • Madrigal Pharmaceuticals is a Health Care company, and the sector average P/E and P/B ratios are 30.21 and 4.08 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.