Over a Brew with Peter Seabrook: Analyst Ratings and Price Targets
For our third instalment of Over a Brew, we had the opportunity to sit down with Peter, our DevOps Engineer, to discuss his hands-on experience with Stake Black. As a premium membership, Stake Black offers advanced features that help traders refine their trading strategy and experience.
Peter finds himself gravitating towards companies that go against the broader trend, to investigate why and whether any opportunities exist. He prefers to go in-depth into company research, using any resources within his reach to make an informed investment decision.
Peter joins us with his own cup of Opening Bell. Grab yours and join us as he shares how he has utilised Analyst Ratings and Price Targets to add value to his research.
Can you explain how Analyst Ratings and Price Targets work?
Analyst Ratings and Price Targets are two features that offer investors access to the investment ratings that professional analysts have on particular stocks. Specifically, analyst ratings are evaluations of whether to buy, sell or hold a stock, based on the disparity between its current price and the analyst's projected price target. These ratings range from "Strong Buy" to "Strong Sell," and are determined through extensive qualitative and quantitative analysis. Price Targets is the stock price that the analyst believes provides a fair value for the company’s shares – they may either provide this as a specific number or as a range.
How do analysts come up with ratings and price targets?
Professional analysts, who are typically employed in investment banks, brokerage firms, and research houses, consider multiple factors in calculating their Price Targets and deciding on their ratings. These include the company’s financial performance, business and profit models, economic and competitive landscapes, management, and potential opportunities and risks. More often than not, they build models on the quantitative elements to come up with specific numbers – calculating the company’s profitability, liquidity and efficiency. You could take an analyst’s rating and price target as the simple conclusion that they come up with after their research – which can be a lot of research!
How would you use these tools in your investing strategy?
Analyst Ratings can help an investor through an entire investment process – from discovery to investment. For example, investors can use these buy/sell ratings to identify potential investment opportunities or to confirm their own investment theses. You can also use Price Targets to determine whether a stock is currently overvalued or undervalued, and to help you decide whether to buy, hold, or sell a particular stock.
How could a beginner get acquainted with these two features?
Analyst Ratings and Price Targets can offer beginner investors a useful starting point for their investing journey, offering them the ability to both look into the analyst valuations of any companies they are interested in and also for spotting new opportunities. It is definitely worth noting though that analysts are still human, and that their analyses are not completely immune to limitations, mistakes or biases. So while these features may give beginners some direction, it’s still important to supplement this information with further research and analysis.
Can you give an example of when Analyst Ratings or Price Targets came in handy to you?
These two features have become a benchmark for some of my investment decisions. Whenever a particular company piques my interest, my first instinct is to check out what the expert analysts rate its current stock price at. When the consensus is a “sell” rating, I generally just keep the stock in my watchlist. If it’s a “buy”, I then spend more time and effort into researching. I also sometimes use Analyst Ratings to confirm my existing view of a stock’s fair value – for example, I thought of investing in Qualcomm ($QCOM) as a way to add semiconductors into my portfolio. I did some research into the company's financial health, and arrived at the conclusion that it was a suitable time to invest in the stock. To further strengthen my investment thesis, I turned to Stake Black’s Analyst Ratings and Price Target features. Seeing what professionals rated the stock, I was able to confirm my hypothesis and gain additional confidence in my investment decision. This highlights the value of utilising tools like Stake Black to supplement one's own research and analysis, ultimately leading to more informed investment choices.
Analyst Ratings and Price Targets are available on Stake Black Wall St, with up-to-date ratings from major sell-side banks – made three hours before each U.S. market open – plus what the analysts believe to be the fair price for a U.S. stock.
Stake Black T&Cs apply.
The personal views in this article do not reflect the views of Stake and do not constitute financial advice.