interpreting forecast figures

[eepee]

Not sure if this is the appropriate board......

I find that the forecast given never bears any relationship to current price.

For example at the moment Playtech is at 555 yet on Monday Deutsche Bank forecast 602.0p to 607.0p

Presumably the forecast is based on an analysis now and based on no special unknown events taking place.

But what does that mean?
That the price will rise to such a figure next week? Next month?? Next year???
That the current price undervalues the company?

Regards,
ep

[GoSeigen]

Not sure if this is the appropriate board......

I find that the forecast given never bears any relationship to current price.

For example at the moment Playtech is at 555 yet on Monday Deutsche Bank forecast 602.0p to 607.0p

Presumably the forecast is based on an analysis now and based on no special unknown events taking place.

But what does that mean?
That the price will rise to such a figure next week? Next month?? Next year???
That the current price undervalues the company?

Regards,
ep

Forecasts are at best a trailing indicator. My opinion is pay no attention to them whatsoever.

GS

[dealtn]

But what does that mean?

The analyst thinks the theoretical (market) price should be X. It is rare for an analyst to quantify why or how or when that "wrong" current market price will correct.

[eepee]

Many thanks for the replies.

Looks as if it is a bit like racing tipsters - some get it right, some get it wrong.

However whereas with tipsters it is relatively easy (I assume) to list hit rates, with analysts, I can't imagine it is because the quoted figures do not have a time-scale so it is trends one would be studying.

Quite a study challenge - I think it is best (as implied in your answers) to read them as a curiosity rather than something to act upon.

Regards,
ep

[Itsallaguess]

Looks as if it is a bit like racing tipsters - some get it right, some get it wrong.

However whereas with tipsters it is relatively easy (I assume) to list hit rates, with analysts, I can't imagine it is because the quoted figures do not have a time-scale so it is trends one would be studying.

Quite a study challenge - I think it is best (as implied in your answers) to read them as a curiosity rather than something to act upon.

I think expecting company-specific forecasts to be accurate or regularly wealth-enhancing is likely to be a losers game over the long run, but with that said, I often find some macro-level stuff interesting in share-articles that might lean on such forecasts figures as part of their underlying articles, because it's sometimes in those secondary macro-level views that I can be highlighted towards a forward-looking broader market opinion, that I have known to be useful to sometimes take on board over the years.

So a forecast that might say 'So and so have raised their price for ABCD to 550p from 490p' is not likely to be of interest to me, but an article that says 'So and so have raised their price for ABCD to 550p from 490p because they see improving opportunities in XYZ' will offer me much more of an interest in the XYZ reasoning over and above any specific company-forecast...

Cheers,

Itsallaguess

[eepee]

Yes, that makes sense.

Presumably, maybe after gaining some experience, one can form an analysis of the analysis and define whether the trend is likely.

Regards,
ep

[jaizan]

Many of the broker reports that private investors have access to are paid for by the company being covered.

I totally ignore the target share price in these. Often it's a fantasy valuation. Then in the small print, the broker discloses that 99% of their recommendations are buy.

The forecast turnover and earnings tend to be more useful and may be a basis for calculating your own valuation.

[greggsA]

The meaning of the forecast vary between sites, within sites and between articles. For example broker x has raised its current forecast price target for this stock from x to y with recommendation from hold to buy is more detailed than average broker forecast price of z rating of hold

[vand]

I think it's important to take a step back and look at the industry as a whole.

Forecasts, recommendations, research, etc etc... is all designed to do one thing: increase turnover. As in any well designed system, the individual players themselves are unaware they are contributing towards it, but brokers, market makers, etc all make their money because people buy and sell on a regular basis. If everyone just bought and held they would all starve.

Broker A says BUY. the next week broker B says SELL. people who pay attention to these things shorten their investment horizon to their own detriment.

There is good research to show that the average holding period for any stock has steadily decreased over time and today stands at around 6 months. Then it's discarded and replaced with a new idea. That's abysmal - it creates huge frictional costs for such "investors" to the benefit of the financial institutions who peddle this nonsense.

[thegr8Destructo]

Generally - foecasts are rarely hit before the next revision is made- I would pay more attention to the direction and magnitude of change, and the underlying reasons for it along with catalysts for real re-rating and technicals.