Target vs. Price Discount

Broker targets and recommendations as to whether clients should buy, sell or hold stocks are widely reported in the media. Despite this, the value of these recommendations is hotly debated as broker recommendations have historically exhibited a strong upward bias. Researchers Jegadeesh, Kim, Krische and Lee found that the average analyst rating over the 1985 to 1999 period was close to a buy recommendation and sell or strong sell recommendation made up less than 5% of all recommendations. This is because most sell-side analysts work for brokerage houses which often have strong investment banking franchises, creating a potential conflict of interest when firms act as investment bankers to the companies their analysts cover.

Nevertheless, the consensus price target can be a useful benchmark of market sentiment around a given stock - it may also be used as a contrarian signal by value investors.

Stockopedia explains Target vs. Price Discount

This is the current discount or premium to the average/consensus broker forecast price (as compiled by Thomson Reuters). Price Targets with a non-12M horizon are excluded by Reuters from the consensus price target calculations.

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