Investors often refer to the recommendations made by Wall Street analysts before making a Buy, Sell or Hold decision about a stock. Although media reports about changes in the rating of the brokerage firm employed (or trading) by analysts often affect stock prices, is it really important?
Let’s take a look at what these Wall Street heavyweights have to say Zscaler (ZS) before we discuss the reliability of the seller’s recommendations and how to use them to your advantage.
Zscaler currently has an average brokerage recommendation (ABR) of 1.66, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendation (Buy, Hold, Sell, etc.) made by 38 brokerage firms. An ABR of 1.66 is between Strong Buy and Buy.
Out of 38 current ABR recommendations, 25 are Strong Buy and one is Buy. Buy and Buy are strong for 65.8% and 2.6% of all recommendations.
Check the price target & stock forecast for Zscaler here>>>
ABR recommends buying Zscaler, but making an investment decision solely on the basis of this information may not be a good idea. According to many studies, sales advisors have little success guiding investors to choose stocks with the greatest potential for price appreciation.
Are you wondering why? Because of the interest that brokerage firms have in the market they cover, their analysts use a strong opinion to measure it. According to our research, brokerage firms assign five “Strong Buy” recommendations for every “Strong Sell” recommendation.
In other words, their interests are not aligned with those of retail investors, and it rarely indicates where the stock price may be heading. Therefore, the best use of this information may be to support your own research or indicators that have proven to be successful in predicting stock price movements.
With a strong track record in external analysis, our stock index, the Zacks Rank, divides stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell ), is a reliable indicator. price performance is close to stock. So, supporting Zacks Rank and ABR can go a long way in making valuable investment decisions.
Despite the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two different things.
ABR is calculated only based on dealer recommendations and is expressed in decimal (example: 1.28). In contrast, the Zacks Rank is a numerical model that allows investors to use the power of earnings forecasting. It is shown in whole numbers — 1 to 5.
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