No one could ignore BHP's price drop during afternoon trading session, as the stock fell to $49.45, logging a -1.0% underperformance of the S&P 500. The stock is still trading within range of its average target price of $51.5, which may prove to be a resistance point to further declines. Analysts have given the Thermal Coal stock target prices ranging from 49.0 to 58.0 dollars per share, with an average rating of buy.
The market seems to share this rosy outlook, since BHP has a short interest of only 0.5%. 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.
When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the 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 BHP has a low rate of institutional ownership at 3.8% 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, BHP is probably the subject of mixed market sentiment because of an analyst consensus of some 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 BHP:
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The stock has trailing 12 month earnings per share (EPS) of $4.48
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BHP has a trailing 12 month Price to Earnings (P/E) ratio of 11.0 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 5.51 in contrast to the S&P 500's average ratio of 4.74
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BHP is a Energy company, and the sector average P/E and P/B ratios are 18.35 and 1.6 respectively
