Price Target (Price Target)

On many analytical services and reviews of experts very often you can find the following phrase: "Analysts at Morgan Stanley set the target price for Tesla shares at $1200.

What is the target price of a stock and should an investor be guided by it?

Analysts at investment banks and funds periodically publish expert reviews of the stock market, which are available not only to their clients, but to all investors. In these reviews, analysts, based on certain methods, evaluate a company's business prospects, the potential for growth or decline in its stock, and set a target price for the stock.

To determine the target price, the analyst uses a range of valuation techniques, from investment and production cycles to multiplier analysis and various models.

In addition to the target price, this forecast contains recommendations on the paper (rating) for the investor:

Also the analyst can predict the dynamics of the stock in relation to the main index, in which the paper is included. The following rating is used for this purpose:

Forecasts with target prices and stock ratings are most often emailed by investment firms to their clients. In general form, they can be found on the websites of investment banks and funds.

In addition, there are many analytical services that collect and systematize such information, providing it to all comers.

Target prices and ratings for Alphabet Class C shares on TipRanks service

It is worth noting that many of these resources are available free of charge only part of the information, the full package of information services is paid.

In addition to specific information, analytical services publish a generalized forecast of all analysts. Such consensus forecasts make it possible to determine the sentiment of investment "whales" with respect to an asset.

Consensus outlook for Amazon stock

Consensus forecasts are published not only on target prices and stock ratings, quite often, especially before the release of financial reports, analysts forecast companies' performance:

The more famous and reputable an investment bank or fund is, the more weight is given to the opinion of its analysts. In the stock market, it often happens that the value of a stock begins to rise after its target price and rating increase, and conversely, falls after negative analysts' opinions.

In theory, this is how it should work, but there are several factors to consider.

An investor, before compiling or rebalancing an investment portfolio, needs to know the ratings and target prices of the securities, but you should definitely not make a decision based on that alone.