One of the standouts of today's afternoon trading session was Vale, which logged a 2.5% performance and outperformed the S&P 500 by 3.0%. The Industrial Metals & Mining stock is now trading at $10.64 per share and may still have upside potential because it is still -29.68% under its average target price of $15.13. Analysts have set target prices ranging from $11.0 to $18.0 dollars per share, and have given the stock an average rating of buy.
The market seems to share this optimistic view, since Vale has a short interest of only 1.3% (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.
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.
A possible indicator of market sentiment on a stock (besides its share price, of course) is the portion of institutional investors that make up its shareholders. Institutions such as banks, hedge funds, and wealth managers deploy significant resources towards identifying good investments. If they are invested heavily in a given company's stock, it could mean it's a good investment. Or it could mean the company is being targeted by a takeover attempt.
For what it's worth, institutions own 16.2% of Vale's shares, which is an average amount. It means that many institutions are invested, but not to the extent that they would be in a stock such as Apple or Amazon, whose institutional ownership rates hover around 60%. Bear in mind that institutional ownership is just one piece of the puzzle in determining market sentiment, and you should not consider this factor alone in making an investment decision.
In conclusion, we see mixed market sentiment regarding Vale because of an analyst consensus of strong upside potential, a buy rating, a very low short interest, and a very small 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 VALE:
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The stock has trailing 12 month earnings per share (EPS) of $2.25
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Vale has a trailing 12 month Price to Earnings (P/E) ratio of 4.7 compared to the S&P 500 average of 28.21
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The company has a Price to Book (P/B) ratio of 0.22 in contrast to the S&P 500's average ratio of 4.71
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Vale is a Basic Materials company, and the sector average P/E and P/B ratios are 23.66 and 2.69 respectively
