![]() 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. Though a positive trend in earnings estimate revisions doesn't give any idea as to how much the stock could surge, it has proven effective in predicting an upside. This view is strengthened by the agreement among analysts that the company will report better earnings than what they estimated earlier. However, an impressive consensus price target is not the only factor that indicates a potential upside in WBD. That's because the ability and unbiasedness of analysts in setting price targets have long been questionable. While the consensus price target is a much-coveted metric for investors, solely banking on this metric to make an investment decision may not be wise at all.
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