PPL’s short interest
Short interest gives the number of a company’s shares that have been sold short and have not been covered. In turn, the number tracks investor sentiment.
Almost all utilities, including PPL Corporation (PPL), are trading at towering valuations, which means they could be corrected. In such a scenario, analyzing short interest can be useful for investors. During mid-May 2016, short interest in PPL decreased, likely reflecting a bullish sentiment of investors in the short term.
Short interest can also indicate stock price movement in the short term. Increased short interest points a bearish investor sentiment and can drive the stock lower. On the other hand, declines in short interest can pull stock up, indicating optimism among investors.
Notably, from short interest, we derive the short interest ratio, which is nothing but short interest divided by average daily traded volume.
Short interest ratio
Over the past three years, PPL’s short interest ratio has declined consistently while its stock price has risen. During PPL’s remarkable rally since the start of 2016, its short ratio stayed below 3% levels. Investors were sheltered by utilities in the past few quarters, given volatile broader markets. The sector thus topped other performers so far this year.
But now PPL’s short interest ratio remains within the range of 2.5%–3%. Investor sentiment was largely positive on PPL in 2016. Mid-size utilities Sempra Energy (SRE) and Edison International (EIX) have also shown a decent run. However, the elevated valuation of PPL could uplift its short interest ratio soon, indicating a reversal in sentiment.
In the next and final part, we’ll look at price targets and analyst recommendations.