Tumbling to a price of $313.41 during today's afternoon trading session, shares of West Pharmaceutical Services are now -22.65% below their average target price of $405.21. Does this mean the stock will reverse course? Analysts are giving WST an average rating of buy and target prices ranging from 355.0 to 470.0 dollars per share.
The market seems to share this rosy outlook, since West Pharmaceutical Services has a short interest of only 2.0%. This represents the percentage of the share float that is being shorted, and each short position stands for an investor's expectation that the price of the stock will go down 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.
Another way to gauge the sentiment on West Pharmaceutical Services is to look at the percentage of institutions that are invested in the stock. In this case, 96.1% 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, West Pharmaceutical Services is probably the subject of mixed market sentiment because of an analyst consensus of strong upside potential, a buy rating, an average amount of 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 WST:
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The stock has trailing 12 month earnings per share (EPS) of $7.6
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West Pharmaceutical Services has a trailing 12 month Price to Earnings (P/E) ratio of 41.2 compared to the S&P 500 average of 27.65
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The company has a Price to Book (P/B) ratio of 8.53 in contrast to the S&P 500's average ratio of 4.59
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West Pharmaceutical Services is a Health Care company, and the sector average P/E and P/B ratios are 27.53 and 3.61 respectively
