With a sudden -1.0% drop to $56.73, International Paper has Wall Street wondering if its shares will keep moving past its target price of $55.55. With an average rating of buy, and analysts assigning target prices from 45.1 to 66.0 dollars per share, investors will be betting heavily on the Paper & Paper Products stock's next move.
The market is more pessimistic on International Paper, because its short interest -- meaning the percentage of its shares that are being shorted on an expectation of a price decline -- is quite high at 17.3%. The float includes only shares that are available for public trading, and excludes preferred shares held by insiders.
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 International Paper, institutional investors own 97.5% of the shares, which indicates they have a very high stake in the company. 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 IP, 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 to 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.
To sum up, International Paper is probably the subject of negative market sentiment because of an analyst consensus of little upside potential, a buy rating, an unusually large proportion 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 IP:
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The stock has trailing 12 month earnings per share (EPS) of $1.17
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International Paper has a trailing 12 month Price to Earnings (P/E) ratio of 48.5 compared to the S&P 500 average of 29.3
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The company has a Price to Book (P/B) ratio of 2.28 in contrast to the S&P 500's average ratio of 4.74
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International Paper is a Basic Materials company, and the sector average P/E and P/B ratios are 24.53 and 2.64 respectively
