During today's morning trading session, Southwest Airlines took the market by storm, rocketing to $29.58 per share despite it now being above its mean target price of $26.43. This 2.3% movement implies there may not be much more room for upwards movement for the stock -- if its analysts are to be believed. They are giving the Airlines stock on average rating of hold, with target prices ranging from 19.0 to 35.0 dollars per share.
Southwest Airlines's short interest can give us an idea of what future price movements the market expects from the stock. The short interest is the percentage of shares that are tied up in short positions, which will provide gains to the investor only if the stock price falls. The stock's short interest is 10.2% which seems to indicate a mixed sentiment on LUV
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 Southwest Airlines, institutional investors own 99.2% of the shares. This would indicate a positive sentiment towards the stock among institutions. 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 LUV, 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 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.
In conclusion, we see negative market sentiment regarding Southwest Airlines because of an analyst belief that shares are overpriced, a hold rating, an above average percentage 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 LUV:
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The stock has trailing 12 month earnings per share (EPS) of $0.13
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Southwest Airlines has a trailing 12 month Price to Earnings (P/E) ratio of 227.5 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 1.69 in contrast to the S&P 500's average ratio of 4.71
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Southwest Airlines is a Consumer Discretionary company, and the sector average P/E and P/B ratios are 22.15 and 3.11 respectively