Price Target Definition - Investopedia

A price target is a price at which an analyst believes a stock to be fairly valued relative to its projected and historical earnings. When an analyst raises ... TechnicalAnalysis TechnicalAnalysisBasicEducation TechnicalAnalysis GuidetoTechnicalAnalysis TechnicalAnalysisBasicEducation AdvancedTechnicalAnalysisConcepts WhatIsaPriceTarget? Apricetargetisananalyst'sprojectionofasecurity'sfutureprice.Pricetargetscanpertaintoalltypesofsecurities,fromcomplexinvestmentproductstostocksandbonds.Whensettingastock'spricetarget,ananalystistryingtodeterminewhatthestockisworthandwherethepricewillbein12or18months.Ultimately,pricetargetsdependonthevaluationofthecompanythat'sissuingthestock. Analystsgenerallypublishtheirpricetargetsinresearchreportsonspecificcompanies,alongwiththeirbuy,sell,andholdrecommendationsforthecompany'sstock.Stockpricetargetsareoftenquotedinthefinancialnewsmedia. KeyTakeaways Apricetargetisananalyst'sprojectionofasecurity'sfutureprice,oneatwhichananalystbelievesastockisfairlyvalued.Analystsconsidernumerousfundamentalandtechnicalfactorstoarriveatapricetarget.Analystsgenerallypublishtheirpricetargetsalongwiththeirbuy,sell,andholdrecommendationsforastock.Pricetargetsforthesamesecuritycanbedifferentbecauseofthevariousvaluationmethodsusedbyanalysts,traders,andinstitutions. 0:59 PriceTarget UnderstandingPriceTargets Apricetargetisapriceatwhichananalystbelievesastocktobefairlyvaluedrelativetoitsprojectedandhistoricalearnings.Whenananalystraisestheirpricetargetforastock,theygenerallyexpectthestockpricetorise. Conversely,loweringtheirpricetargetmaymeanthattheanalystexpectsthestockpricetofall.Pricetargetsareanorganicfactorinfinancialanalysis;theycanchangeovertimeasnewinformationbecomesavailable. FactorsThatHelptoDetermineaPriceTarget Thepricetargetisbasedonassumptionsaboutasecurity'sfuturesupplyanddemand,technicallevels,andfundamentals.Differentanalystsandfinancialinstitutionsusevariousvaluationmethodsandtakeintoaccountdifferenteconomicconditionswhendecidingonapricetarget. Forfundamentalanalysts,acommonwaytodiscernthepricetargetforastockistocreateamultipleoftheprice-to-earnings(P/E)ratio—bymultiplyingthemarketpricebythecompany’strailing12-monthearnings. Insomecases,particularlywithvolatilestocks,analystswilllookforadditionalguidancetoformtheirpricetargets,whichcouldincludereviewingacompany’sbalancesheetandotherfinancialstatementsandcomparingthemtohistoricalresults,currenteconomics,andthecompetitiveenvironment,studyingthehealthofacompany'smanagement,andanalyzingotherratios. Technicalanalystsuseindicators,priceaction,statistics,trends,andpricemomentumtogaugethefuturepriceofasecurity.Onewaythattheyarriveatapricetargetistofindareasofdefinedsupportandresistance.Ananalystwilldothisbychartingapricethatmovesbetweenatleasttwosimilarhighsandlowswithoutbreakingaboveorbelowthosepointsatanypointinbetween. SpecialConsiderationsAboutPriceTargets ForTraders Traderswillgenerallylooktoexittheirpositiononastockwhentheoriginallyexpectedvalueofthetradehasbeenrecognized.Althoughpricetargetscanhelptradersunderstandwhentobuyorsellastock,traderscanandshoulddeterminetheirownpricetargetsforenteringandexitingpositions. IfYou'reaSophisticatedInvestor Forindividualinvestors,theassumptionsthatunderlieanalysts’pricetargetsarenotalwaysobvious.Investorsshoulduseanalysts'pricetargetsandrecommendationsasjustonepartoftheirinvestmentduediligence,whichcouldincludereviewingacompany'sfinancialsandregulatoryfilings,amongotherresources. Despitethemostcarefulanalysis,wecannotknowforcertainthepriceatwhichastockwilltradeinthefuture.Nevertheless,whenaprominentanalystchangestheirpricetarget,itcanhaveasignificantimpactonthepriceofasecurity. PriceTargetsArePowerfulGuesstimates Accuratelyforecastingasecurity'spricemovementisbasedonprojection,probability,numeroustools,andlotsofexperience.However,evenforthemostseasonedprofessional,apricetargetisstillacalculatedguess. Someportfoliomanagersbelievethatpricetargets,alongwithresearchreports,functionmainlyasmarketingtoolsforbrokeragesandinvestmentbankstogenerateinterestinasecuritythatthey'reunderwriting. HowArePriceTargetsCalculated? Pricetargetstrytopredictwhatagivensecuritywillbeworthatsomepointinthefuture.Analystsattempttosatisfythisbasicquestionbyprojectingasecurity'sfuturepriceusingablendoffundamentaldatapointsandeducatedassumptionsaboutthesecurity'sfuturevaluation. ArePriceTargetsAccurate? Despitethebesteffortsofanalysts,apricetargetisaguesswiththevarianceinanalystprojectionslinkedtotheirestimatesoffutureperformance.Studieshavefoundthat,historically,theoverallaccuracyrateisaround30%forpricetargetswith12-18monthhorizons.However,pricetargetsdohavetheabilitytoswayinvestorsentiment,especiallyiftheycomefromcredibleanalysts. WhereArePriceTargetsFound? Analystsgenerallypublishtheirpricetargetsinresearchreportsonspecificcompanies,alongwiththeirbuy,sell,andholdrecommendationsforthecompany'sstock.Stockpricetargetsareoftenquotedinthefinancialnewsmedia. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. CorporateFinanceInstitute."LTM(LastTwelveMonths)."AccessedSept.3,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatDoesCoverageInitiatedMean? Coverageinitiatediswhenabrokerageoranalystissuestheirfirstratingonaparticularstock,andit'sespeciallyrelevantafteracompanyhasgonepublic. more WhatIsFundamentalAnalysis? Fundamentalanalysisisamethodofmeasuringastock'sintrinsicvalue.Analystswhofollowthismethodseekoutcompaniespricedbelowtheirrealworth. more CoveredStock(Coverage) Acoveredstockisastockforwhichasell-sideanalystpublishesresearchreportsandinvestmentrecommendationsforclients. more WhatIsaSellSignal? Asellsignalisaconditionormeasurablelevelatwhichaninvestorisalertedtosellaspecifiedinvestmentandcanhaveanimpactonperformance. more TechnicalAnalysisofStocksandTrends Technicalanalysisofstocksandtrendsisthestudyofhistoricalmarketdata,includingpriceandvolume,topredictfuturemarketbehavior. more UnderstandingTechnicalAnalysis Technicalanalysisisatradingdisciplinethatseekstoidentifytradingopportunitiesbyanalyzingstatisticaldatagatheredfromtradingactivity. more PartnerLinks RelatedArticles Stocks Whydoanalystssometimesgiveanoverweightrecommendationonastock? InvestingEssentials Buy-Sidevs.Sell-SideAnalysts:What'stheDifference? Crime&Fraud ShortandDistort:BearMarketStockManipulation Accounting HowDoesFinancialAccountingHelpDecision-Making? TechnicalAnalysisBasicEducation TheDifferenceBetweenFundamentalvs.TechnicalAnalysis? TechnicalAnalysisBasicEducation Debunking8MythsAboutTechnicalAnalysis