What Is a Price Target? - The Balance

Price targets are estimates of what a security is worth based on fundamental and technical analysis. Price targets are price expectations at some point in ... LinkedInwithBackground Investing Trading WhatIsaPriceTarget? PriceTargetsExplained ••• JirapongManustrong/GettyImages TableofContents Expand TableofContents DefinitionandExampleofPriceTargets HowPriceTargetsWork DoINeedtoKnowPriceTargets? TargetPricevs.CurrentPrice ProsandConsofPriceTargets HowToFindPriceTargets KeyTakeaways By BrandonRenfro FullBio LinkedIn Twitter BrandonRenfroisaCertifiedFinancialPlanner,RetirementIncomeCertifiedProfessional,anIRScredentialedEnrolledAgent,andanassistantprofessoroffinance.Healsorunshisownretirementandwealthmanagementfirm.Brandonspendshisweekstalkingaboutpersonalfinancematterswitheveryonefromcollegestudentstoretirees. Learnaboutour editorialpolicies UpdatedNovember18,2021 Reviewedby AkhileshGanti Reviewedby AkhileshGanti FullBio AkhileshGantiisaforextradingexpertandregisteredcommoditytradingadvisorwhohasmorethan20yearsofexperience.Heisdirectlyresponsibleforalltrading,risk,andmoneymanagementdecisionsmadeatArctosFXLLC.HehasMasterofBusinessAdministrationinfinancefromMississippiStateUniversity. Learnaboutour FinancialReviewBoard Apricetargetisanestimatedvalueofasecuritybasedonanindividualinvestor’sorprofessionalanalyst'sassessment.Itisarepresentationofwhattheinvestororanalystbelievesthesecuritytobeworth. Analystswillcommonlypublishtheirpricetargetsinformalreports,andtraderssometimesusepricetargetstodeterminewhetherornottobuyorsellasecurity.Understandinghowpricetargetsaredeterminedandhowtheyareusedcanhelpyouexpandyourinvestingknowledge,butit’snotessential. DefinitionandExampleofPriceTargets Apricetargetiswhatananalystbelievestobethetruevalueofasecurity,whichisalsoknownastheintrinsicvalue.Thisisoftendifferentfromthecurrentmarketpriceofthesecurityandismeanttoconveywhethertheanalystbelievesthesecurityisunder-orovervalued.Forexample,ananalystmayreviewastockthatiscurrentlytradingat$35pershareandassignitapricetargetof$42. Analystsmayincorporatebothfundamentalandnon-fundamental,ortechnical,informationintotheirassessmentstodeterminepricetargets. Fundamentalfactorsusedtoevaluatethevalueofasecurityincludeeconomicdataandfinancialinformationaboutthecompany.Theuseoffinancialratiossuchaspricetoearningsisakeycomponentoffundamentalanalysis. Technicalanalysisreliesonpatternsinstockpricemovementstogaugefuturepricemovements.Technicalindicatorsmaysuggesttoananalystthatapricewillriseorfalltoacertainlevel. HowPriceTargetsWork Analystsreviewsecuritiestodeterminetheirvalueandmakerecommendationstobuy,sell,orholdthem.Aspartofthatprocess,analystswilltypicallygenerateapricetargetandpublishitalongwiththeirrecommendations.Thepricetargetistypicallythepriceastockisexpectedtoreachin12months. Investorsthatfollowanalysts’recommendationsmaythendecidetotradebasedontherelationshipbetweenthecurrentpriceandthetargetprice.Ifthecurrentpriceisbelowthetarget,thissuggeststhatthesecurity’spriceisexpectedtoincreaseandtheinvestormaybuyit.Ifthecurrentpriceofthesecurityisabovethetargetprice,itindicatesthattheanalystexpectsthepricetofall.Theinvestorwouldeithernotbuythesecurity,oriftheyalreadyownit,theymightsellit. Continuingourexampleaboveofastocktradingat$35withapricetargetof$42,aninvestorwhomakesdecisionsbasedonpricetargetswouldlikelybuythestock. DoINeedtoKnowPriceTargets? Youmaydecidetoconsiderpricetargetsaspartofyourowninvestmentanalysisanddecision-makingprocess,butit’snotnecessary.  Pricetargetsarenotrelevantforlong-terminvestors,suchasthosewhofollowabuyandholdstrategy,becausetheyaretypicallygivenforperiodsofaboutayear. Pricetargetsarealsonotrelevantforindexinvestorsbecausetheywillholdwhat'sintheindexregardlessofanindividualstock’spricetargets. TargetPricevs.CurrentPrice Thecurrentormarketpriceiswhatthestockiscurrentlytradingatontheopenmarket.Itisareflectionofthecurrentsupplyanddemandforthatstock.Thetargetstockpriceisanestimatethatananalystbelieveswillbethecurrentpriceatsomepointinthefuture,generally12monthsfromnow.  TargetPrice CurrentorMarketPrice Whatananalystthinksthestockpricewillbeinthefuture Thestock'scurrentpriceontheopenmarket ProsandConsofPriceTargets Pros Giveyouanindicationofastock’svalue Helpinforminvestmentdecisions Cons Analystsmaydisagreeonpricetargets Noguaranteeofpricemovement Pricetargetscangiveyouanindicationofwhatothersbelieveastockistrulyworth.Thiscanhelpinformyourinvestmentdecisions,butyoushouldn’trelysolelyonapricetargettomakeabuy-or-selldecision.Pricetargetsarejustinformedestimates.Analystsdonotalwaysagreewithoneanother,andthere’snoguaranteethatastockwillreachitspricetargetormoveinthesamedirectionasthetargetprice. HowToFindPriceTargets Pricetargetsarereadilyavailableonline.Somebrokeragefirmsprovidethemasaservicetoinvestmentclients,andyoucanalsofindthemonyourownthroughapaidinvestmentresearchservice.FreeoptionsincludethoseofferedonYahoo!Finance. KeyTakeaways KeyTakeaways Pricetargetsareestimatesofwhatanalyststhinkastockisreallyworth.Pricetargetsreflectwhatthepriceisexpectedtobeatsomepointinthefuture,ofteninoneyear.Investorsandtradersmayincorporateanalysts’pricetargetsintotheirowninvestmentanalysis. ArticleSources PawelBilinski,DanielleLyssimachou,andMartinWalker."TargetPriceAccuracy: InternationalEvidence."Page2.AccessedAug.3,2021 Share Tweet Share Email WhatIsanEarningsSurprise? WhatIsEarningsSeason? WhatIsaBearTrapinTrading? WhatIsanUnderlyingAsset? WhatIsStockAnalysis? WhatIsanOrderBook? HowtoChoosetheBestInvestmentStrategiesforYou WhatIsDeltainOptionsTrading? WhatIsIntraday? WhatIsShareTurnover? WhichMattersMore:AStock'sValueorPrice? 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