That's because empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Here's Why There Could be Plenty of Upside Left in EZPWĪnalysts' growing optimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason to expect an upside in the stock. So, price targets should always be treated with a high degree of skepticism. ![]() That said, while investors should not entirely ignore price targets, making an investment decision solely based on them could lead to disappointing ROI. While that doesn't necessarily mean the stock will hit the average price target, it could be a good starting point for further research aimed at identifying the potential fundamental driving forces. However, a tight clustering of price targets, which is represented by a low standard deviation, indicates that analysts have a high degree of agreement about the direction and magnitude of a stock's price movement. ![]() In other words, business incentives of firms covering a stock often result in inflated price targets set by analysts. They usually do that to drum up interest in shares of companies that their firms either have existing business relationships with or are looking to be associated with. While Wall Street analysts have deep knowledge of a company's fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to set overly optimistic price targets. In fact, empirical research shows that price targets set by several analysts, irrespective of the extent of agreement, rarely indicate where the price of a stock could actually be heading. ![]() Here's What You May Not Know About Analysts' Price TargetsĪccording to researchers at several universities across the globe, a price target is one of many pieces of information about a stock that misleads investors far more often than it guides. While a positive trend in earnings estimate revisions doesn't gauge how much a stock could gain, it has proven to be powerful in predicting an upside. Strong agreement among analysts about the company's ability to report better earnings than they predicted earlier strengthens this view. And investors making investment decisions solely based on this tool would arguably do themselves a disservice.īut, for EZPW, an impressive average price target is not the only indicator of a potential upside. While the consensus price target is highly sought after by investors, the ability and unbiasedness of analysts in setting price targets have long been questionable.
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