What does it "price target" mean to the average investor?

It simply means the analyst has done some homework with the company's financial data, examined what company management has said in Management Discussion, looked into his own crystal ball, and recognizing his employer has some/significant relationship with the company in underwriting, loans, or advisory matters and picked a number that won't piss anyone (employer or company) off.

His employer's full service brokers/salesmen may also now try harder to peddle BTE to his/her clients.

In other words, the suggestion/promise of the trend sounds nice/good, but the number itself should be ignored. When I look at analyst ratings, I tend to only note what 'independents' like Morningstar or such have to say, and then only in terms of trend.

But they also estimate Forward P/E, future EPD, revenue etc...

I am sure before any price target of all stocks they have a base to build off which is where they see the economy and overall conditions going forward like the next year should look like. Then I am sure they will have a base to build off which is where the sector of the stock overall is heading in the future in their outlook. Then go further and see where that stock lines up to the competition and whether it is a leader or what have you. They will also look at things like where a company operates as in country risk and of course its balance sheet. From this and more I would think is where they will place their price target.

I bet if you study price forecasts vs actual results, you'll find that they are pretty well useless.

For sure a lot of outlook in it and any change can ruin the results so it would be almost useless.

Research houses have to 'do something'. Creating a price forecast is 'something', so they do it. Stock prices are to a large extent driven by more macro factors that tend to drive the whole market up and down.

thanks all who replied.
I kinda thought that the number was useless -but I had no idea why it would be produced, and what the target was supposed to infer about the SP. sounds like crystal-ball gazing 101.

Seems to at least every stock has a price target and by default it's almost always higher.
They usually give you the range from the low point to the implied high point with about a 25% swing between both numbers.
If you went with that you would think every stock listed is a "sure" winner from where your buying it.

donald said:

Seems to at least every stock has a price target and by default it's almost always higher.
They usually give you the range from the low point to the implied high point with about a 25% swing between both numbers.
If you went with that you would think every stock listed is a "sure" winner from where your buying it.

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Not always true I usually checking those price targets together with other numbers on Thompson Reuter. Usually they have High target and Low target (except stocks that not covered and if only 1 analyst covers). In some cases Mean Targer is lower than current price.

Example of AAPL:
Target price:
Mean 587
High 777
Low 270
Target vs Current 10.6%
# of Analysts 45

I think how much weight you put on price targets depends largely on your investing strategy.

If you’re an index investor then it’s a moot point because you’re taking the position that on average the current market price is the most accurate price target.

If you’re a value investor then you’d want to do your own evaluation to come up with your own price targets, in which case an analyst’s price target can be useful as a comparison.

If you’re a momentum investor then the price target can be useful in gauging investor sentiment whether it’s bullish or bearish.

Personally, I'm an index investor so I don't put much weight in price targets.

andrewf said:

I bet if you study price forecasts vs actual results, you'll find that they are pretty well useless.

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Probably true long term but inevitably, when one of the big houses raises it's price target the SP pops up like a whack a mole on the next trading day.

andrewf said:

I bet if you study price forecasts vs actual results, you'll find that they are pretty well useless.

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Actually, I did some research on this, a number of years ago.

The conclusion that I found was that....

Stocks with a higher ratio of Target Price / Current Price would perform worse (1 year later), than stocks that have a lower ratio.

In other words, if an analyst is 'pumping' up expectations for a stock, via high a Target Price, it will probably perform worse than other stocks that are closer to their Target Prices.

It's what they are selling this week. The analyst pulled the number out of his ***, that is why they are called "analists". Follow some of these recommendations for a while and you will notice they tack a few bucks onto whatever it went for last week and call it a day. As the stock goes up or down they revise the number the same way.

One thing they never do is give a sell recommendation or pick a low price, that would be bad for business. If they ever diss a stock you know the company is bankrupt.

If you recall the price target history for Nortel, it was always rosy and well above current price all the way down the toilet.

What is slightly more important (but not much) is the number of BUY recommendations. Not because it is any more accurate but that it encourages brokers to sell the stock to their clients.

it's a little known fact that td bank will refund up to 25% of your purchase price if you buy a stock and it fails to reach their analyst target price within the stated time frame
you need to send in the original trade confirmation as proof of purchase, photocopies will not do, it MUST be the original
i believe this is covered under their "commitment to buyer satisfaction" pledge which you can find at TDW

fatcat said:

it's a little known fact that td bank will refund up to 25% of your purchase price if you buy a stock and it fails to reach their analyst target price within the stated time frame
you need to send in the original trade confirmation as proof of purchase, photocopies will not do, it MUST be the original
i believe this is covered under their "commitment to buyer satisfaction" pledge which you can find at TDW

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you're not serious i hope?

it would be so easy to construct option strategies that would take advantage of 25% off the buy price.

statistically these would have a greater probability of success than those earnings-related iron flies & condors that folks are always going on about.

i wonder if the TD forces the analysts to take up the counter-positions? ie the salary and/or bonus of an analyst whose stock fails to meet his target price gets docked by a refined logarithm based on (target-less-market) & including interest rates plus time-to-maturity ...

fatcat said:

it's a little known fact that td bank will refund up to 25% of your purchase price if you buy a stock and it fails to reach their analyst target price within the stated time frame
you need to send in the original trade confirmation as proof of purchase, photocopies will not do, it MUST be the original
i believe this is covered under their "commitment to buyer satisfaction" pledge which you can find at TDW

Click to expand...

confirmed this to be correct, just called 1-900-TDW-CASH to verify !!!!