One of the standouts of today's afternoon trading session has been Vale, which logged a -2.6% drop and underperformed the S&P 500 by -3.0%. The Industrial Metals & Mining stock is now trading at $9.36 per share and is -32.32% below its average target price of $13.83. Analysts have set target prices ranging from $10.0 to 18.0 dollars per share, and have given the stock an average rating of buy.
The market seems to share this rosy outlook, since Vale has a short interest of only 1.7%. This represents the percentage of the share float that is being shorted, and each short position stands for an investor's expectation that the price of the stock will go down 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.
We can make inferences about the market sentiment surrounding Vale by analyzing its rate of institutional ownership. If institutions such as hedge funds and pension funds are the primary shareholders of a corporation, it most likely means that its shares are a good investment according to those institutions' analysts.
At 16.2%, the rate of institutional ownership is average, indicating that a sufficient number of institutions have concluded that it is a stable investment. Beware, however, that the rate of institutional ownership could also indicate an ongoing proxy battle or takeover attempt -- so you should also periodically check the news about a stock whose institutional ownership you are tracking.
To sum up, Vale is probably the subject of mixed market sentiment 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 $2.16
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Vale has a trailing 12 month Price to Earnings (P/E) ratio of 4.3 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 0.19 in contrast to the S&P 500's average ratio of 4.74
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Vale is a Basic Materials company, and the sector average P/E and P/B ratios are 24.53 and 2.64 respectively
