With a sudden -3.2% drop to $84.94, Ingersoll Rand has Wall Street wondering if its shares will keep moving past its target price of $89.13. With an average rating of buy, and analysts assigning target prices from 77.0 to 101.0 dollars per share, investors will be betting heavily on the Farm & Heavy Construction Machinery stock's next move.
The market seems to share this rosy outlook, since Ingersoll Rand has a short interest of only 3.9%. 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.
Another way to gauge the sentiment on Ingersoll Rand is to look at the percentage of institutions that are invested in the stock. In this case, 99.9% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
To sum up, Ingersoll Rand is probably the subject of mixed market sentiment because of an analyst consensus of some upside potential, a buy rating, an average amount of 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 IR:
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The stock has trailing 12 month earnings per share (EPS) of $2.02
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Ingersoll Rand has a trailing 12 month Price to Earnings (P/E) ratio of 42.0 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 3.27 in contrast to the S&P 500's average ratio of 4.74
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Ingersoll Rand is a Industrials company, and the sector average P/E and P/B ratios are 24.03 and 2.89 respectively
