One of the standouts of today's afternoon trading session has been Li Auto, which logged a -7.8% drop and underperformed the S&P 500 by -9.0%. The Auto Manufacturers stock is now trading at $23.61 per share and is -26.9% below its average target price of $32.29. Analysts have set target prices ranging from $20.03 to 60.99 dollars per share, and have given the stock an average rating of buy.
The market seems to share this optimistic view, since Li Auto has a short interest of only 4.7% (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.
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 measure of the market sentiment regarding a stock is its rate of institutional ownership, which in the case of Li Auto stands at 8.6%. 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 Li Auto because of an analyst consensus of strong upside potential, a buy rating, an average amount of 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 LI:
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It has trailing 12 month earnings per share (EPS) of $1.34 per share
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Li Auto has a trailing 12 month Price to Earnings (P/E) ratio of 17.6 while the S&P 500 average is 29.3
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The company has a Price to Book (P/B) ratio of 0.35 in contrast to the S&P 500's average ratio of 4.74
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Li Auto is a Consumer Discretionary company, and the sector average P/E and P/B ratios are 22.6 and 3.19 respectively
