However, a tight clustering of price targets, which is represented by a low standard deviation, indicates that analysts have a high degree of agreement about the direction and magnitude of a stock's price movement. In other words, business incentives of firms covering a stock often result in inflated price targets set by analysts. They usually do that to drum up interest in shares of companies that their firms either have existing business relationships with or are looking to be associated with. While Wall Street analysts have deep knowledge of a company's fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to set overly optimistic price targets. In fact, empirical research shows that price targets set by several analysts, irrespective of the extent of agreement, rarely indicate where the price of a stock could actually be heading. Here's What You May Not Know About Analysts' Price TargetsĪccording to researchers at several universities across the globe, a price target is one of many pieces of information about a stock that misleads investors far more often than it guides. While a positive trend in earnings estimate revisions doesn't gauge how much a stock could gain, it has proven to be powerful in predicting an upside. Strong agreement among analysts about the company's ability to report better earnings than they predicted earlier strengthens this view. That's because the ability and unbiasedness of analysts in setting price targets have long been questionable.īut, for CHK, an impressive average price target is not the only indicator of a potential upside. While the consensus price target is a much-coveted metric for investors, solely banking on this metric to make an investment decision may not be wise at all. The smaller the standard deviation, the greater the agreement among analysts. It's very important to note the standard deviation here, as it helps understand the variability of the estimates. While the lowest estimate of $85 indicates a 11.9% decline from the current price level, the most optimistic analyst expects the stock to surge 139.3% to reach $231. The mean estimate comprises 12 short-term price targets with a standard deviation of $39.32. Going by the price targets, the mean estimate of $121.75 indicates a potential upside of 26.1%. Shares of Chesapeake Energy ( CHK Quick Quote CHK - Free Report) have gained 2% over the past four weeks to close the last trading session at $96.53, but there could still be a solid upside left in the stock if short-term price targets of Wall Street analysts are any indication.
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