Home > Articles > Business & Management > Finance & Investing

This chapter is from the book

Stock Price Targets Are Specious

Analysts are now required to include price targets on research reports, with attendant justification, which can involve a formal model to calculate fair or intrinsic value. But this also means predicting the future, encompassing influences such as overall stock market trends, the economy, war, and interest rates, all of which are far beyond an analyst’s presumably good insight into company and industry prospects. In the bubble years, the Internet analysts pulled absurd, astronomical triple-digit price objectives out of the blue, and naive investors actually gave these goals credence. It still happens, as in the case of the excessive expectations for the Google stock price in 2007 and even in 2008.

In current sober times, the guesses might be a bit more tempered but are still unrealistic, or at least unbalanced. Stock price estimates are utilized to emphasize Buy or Sell ratings. Analysts put too high a goal on stocks for which they have favorable opinions to help justify their view, and to assist in marketing to hype the story. The price-point forecast is artificially low for companies on which analysts are negative. When such a target is hit, it can trigger a downgrade in analyst opinion. That impacts the stock price and has adverse short-term influence on long-term investors. Opinion changes that are based on the stock achieving a published price target should be taken lightly. Price objectives are just plain fiction.

  • + Share This
  • 🔖 Save To Your Account