NVS Stock Plummets – What's Behind the Decline?

By Naomi Wentworth • Wednesday, December 04 10:10 • Permanent Link

Tumbling to a price of $101.34 during today's morning trading session, shares of Novartis are now -12.76% below their average target price of $116.16. Does this mean the stock will reverse course? Analysts are giving NVS an average rating of hold and target prices ranging from 97.0 to 130.0 dollars per share.

The market sentiment on the stock is decidedly optimistic, since Novartis has a short interest of only 0.2%. 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 way to tell how the market is perceiving a stock is to look to its rate of institutional ownership. With their vast resources, hedge funds, pension funds, and wealth managers are able to perform due diligence to a level that most investors cannot. So it follows that their investment decisions may be more educated. But we also know that bankers and portfolio managers can make mistakes too.

So the fact that Novartis has a low rate of institutional ownership at 6.7% is not an immediate red flag. It just means that something about the company has kept institutional investors from committing -- or the stock is simply flying under their radar.

To sum up, Novartis is probably the subject of mixed market sentiment because of an analyst consensus of some upside potential, a hold 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 NVS:

The stock has trailing 12 month earnings per share (EPS) of $5.73
Novartis has a trailing 12 month Price to Earnings (P/E) ratio of 17.7 compared to the S&P 500 average of 29.3
The company has a Price to Book (P/B) ratio of 4.68 in contrast to the S&P 500's average ratio of 4.74
Novartis is a Health Care company, and the sector average P/E and P/B ratios are 26.07 and 3.53 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.