Stock Price Targets Relevance Explained

As original posted on Yahoo Finance on December 13, 2022

Stock Price Targets Relevance Explained

When it comes to investing in stocks, there is a lot of information out there. And while some of it may be helpful, a lot of it can be confusing and overwhelming, especially for new investors. One thing that all investors need to pay attention to, however, is stock analyst price targets and ratings.

What are Stock Analyst Price Targets and Ratings?

Stock analyst price targets and ratings are basically recommendations that analysts make about a particular stock. They will look at a variety of factors, such as a company’s financials, the overall market conditions, and recent news about the company, before making their recommendation. It is not uncommon for analysts in the industry to have regular meetings with management and tours at company headquarters or business locations.

The analyst will produce at least four reports per year on each stock that they cover with the report being six pages on average. There are two summaries in these bottom lines – one for rating and another designating a price target.

Ratings can be either “buy,” “hold,” or “sell.” “Buy” in different variations means that the analyst thinks the stock is a good investment and will go up in value. “Hold” means that the analyst thinks the stock is okay but doesn’t expect it to make any major moves. “Sell” means that the analyst thinks the stock is not a good investment and expects it to go down in value.

A stock price target is the projected price level of a financial security stated by an investment analyst or advisor. The figure is a part of a research report issued by the analyst or advisor. A stock price target may be stated as a specific price level, or it may be stated as a range. For example, an analyst may issue a report with a $50 per share target for Company XYZ’s stock over the next 12 months. An analyst may also issue a report with a target range of $45 to $55 per share for Company XYZ’s stock over the next 12 months.

The purpose of issuing a stock price target is to give investors an idea of what analysts or advisors believe is achievable in the short-term or long-term future. Many times, targets are dependent upon certain conditions being met, such as achieving its earnings targets over the next fiscal year. When conditions are not met, companies often issue revised targets. Sometimes companies will miss their targets due to unforeseen circumstances, such as economic recession or political upheaval. There are many different variables that can impact a company’s ability to meet its stock price target.

Investors should keep in mind that stock price targets are opinions and not guarantees. While analysts and advisors use their expertise and knowledge to come up with their predictions, there is no guarantee that their targets will be met. In addition, companies do not always meet their earnings targets which can impact their ability to meet their stock price targets. As such, investors should not make investment decisions based solely on stock price targets but should use them as one factor in their overall decision-making process.

Are price targets Important?

Price targets or stock forecasts as they are sometimes called and ratings are important because they can give you an idea of what experts think about a particular stock. Following the recommendations of analysts can be a helpful way to make investment decisions. Common wisdom says that If multiple analysts are recommending a particular stock, then that’s usually a good sign. On the other hand, if most analysts are recommending that you sell a particular stock, then you might want to reconsider your investment.

Where can I get these price targets and ratings?

A simple search with your desired stock and the words “price target” on your favorite search engine will lead to multiple results leading with a standard consensus and averages of analysts’ views.

For example, if searching for the words AAPL price target we will see a screenshot from money CNN showing exactly that as the first on Google.

Is following the analyst census the best there is?

Averaging together all data points will give us one number but doesn’t tell us anything about what might happen in between those numbers- how much noise or randomness there really may have been when collecting those figures. The data available on analysts’ predictions isn’t detailed enough, so it’s difficult (if not impossible) to figure out which ones were actually successful and why their returns were better than others’. Also, they’ll likely never be any way of knowing whether someone got lucky or had good insight into the market with documented multiple consistent successful calls which is the only way to inspire confidence.

Follow closely to figure out what the next move is by the analyst you’re tracking. A change of opinion on their part has the potential to deeply affect shares of company X. There’s a strong chance an advisory has been issued that the regular public is unaware of. Even if there hasn’t been a statement made yet, the road ahead could be full of unknown developments. Having this insight may end up being invaluable in anticipating changes and taking advantage of opportunities.

What’s the scoop on past performance?

It turns out that finding how an analyst did with a stock before is not as straightforward and user-friendly when you look at search engines. To some extent, all we can typically find from these platforms are their current price target and rating for each person who has been reviewing stocks recently.

The number of websites that post news regarding stock forecasts is extensive with sites such as Yahoo, Bloomberg. Reuters , Market Watch to name only a few publishing hundreds daily recommendations on stocks- some will show you recent events while others hide them from view.

There are a lot of problems with searching for analysts’ recommendations. Some platforms will show you previous ratings but not the price targets which makes it difficult for investors because they’re missing out on important information such as how good or bad an analyst was at predicting prices before his/her recommendations were made public record (through news articles), others won’t name analysts by name. There’s also no easy way around this: if professionals stand behind their work and move from one firm back into another then everything associated goes along with them.

These platforms do show stock price targets and ratings made by analyst over time:

If you have access to a Bloomberg terminal it provides a display of analysts’ price targets per stock connected as a trend line next to the stock price line to visually show the dynamic between the analyst thoughts and the stock such if the analysts raised/ lowered their price target before or after the stock price moved however it is capped in time and only shows one analyst at a time.

AnaChart is a recent solution that provides an easy way to compare price targets for a particular stock. Unlike other solutions, AnaChart allows you to see how different analysts’ price targets compare on an individual stock basis. This is useful if you want to see how multiple firms have analyzed a particular company. Additionally, AnaChart adjusts target prices for stock splits, so you can see how they compare over time.

One of the coolest features of AnaChart is that it provides links to the media that published each recommendation, right in the tool tips on the stock chart. This means that instead of having to search the internet for this information, you can easily access it right from the chart, allowing you to focus on reading and analysis instead.