Analyzing ARM's Performance – Market Perception of the Stock

By Scott Lee • Friday, August 02 07:51 • Permanent Link

One of the standouts of today's morning trading session has been Arm, which logged a -15.7% drop and underperformed the S&P 500 by -15.0%. The Semiconductors stock is now trading at $121.51 per share and is -10.0% below its average target price of $135.01. Analysts have set target prices ranging from $55.4 to 200.0 dollars per share, and have given the stock an average rating of buy.

We can use Arm's short interest as a proxy for determining general market sentiment regarding the stock. The short interest is the percentage of the share float that represents short positions, meaning that the investor believes the stock will decline in the future. Since ARM's short interest is 11.2%, the market sentiment is mixed on this stock.

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.

One measure of the market sentiment regarding a stock is its rate of institutional ownership, which in the case of Arm stands at 6.4%. This indicates a lower than average rate of institutional ownership -- but what does that have to do with sentiment regarding the stock?

The reason we look at institutional ownership is that institutions such as hedge funds, pension funds, and mutual funds have vast research capabilities. They are often close to management, speaking to them one-on-one and gaining an understanding of the opportunities and challenges they face. Thus, if an institution is willing to place their capital in a company, it's likely that their due diligence has shown it is a safe bet.

Overall, there is mixed market sentiment towards Arm because of an analyst consensus of some upside potential, a buy rating, an above average percentage of its shares sold short, and a very small 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 ARM:

It has trailing 12 month earnings per share (EPS) of $0.4 per share
Arm has a trailing 12 month Price to Earnings (P/E) ratio of 303.8 while the S&P 500 average is 28.21
The company has a Price to Book (P/B) ratio of 22.49 in contrast to the S&P 500's average ratio of 4.71
Arm is a Technology company, and the sector average P/E and P/B ratios are 31.58 and 4.11 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.