Definition and Example of Price Targets
How Price Targets Work
Do I Need to Know About Price Targets?
Target Price vs Current Price
Advantages and Disadvantages of Price Targets
How to Find Price Targets
Definition and Example of Price Targets
A price target is an estimated value for a particular security based on an individual investor’s or professional analyst’s assessment. It represents what the investor or analyst believes the security is worth.
How Price Targets Work
Analysts review securities to determine their value and issue recommendations to buy, sell, or hold those securities. As part of this process, analysts will typically generate a price target and publish it alongside their recommendations. The price target is typically the price that the analyst expects the stock to reach within the next 12 months.
Do I Need to Know About Price Targets?
You may decide to consider price targets as part of your investment analysis and decision-making process, but they are not essential. Price targets are irrelevant for long-term investors, such as those following a buy-and-hold strategy, as they are usually given for periods estimated to be around one year. Price targets are also irrelevant for index investors, as they will hold whatever is in the index regardless of individual stock price targets.
Target Price vs Current Price
The current price or market price is the price at which the stock is currently trading in the open market. It reflects the current supply and demand for that stock. The target price is an estimate that the analyst believes will be the current price in the future, typically 12 months from now.
Advantages and Disadvantages of Price Targets
Advantages:
- Gives you an idea of the stock’s value
- Helps in investment decisions
Disadvantages:
- Analysts may disagree on price targets
- No guarantees of price movements
Price targets can give you an idea of what others believe the stock is truly worth. This information can help inform your investment decisions, but you should not rely solely on the price target to make a buy or sell decision. Price targets are just educated estimates. Analysts do not always agree with one another, and there is no guarantee that the stock will reach its price target or move in the same direction as the target price.
How to Find Price Targets
Price targets are readily available online. Some brokerage firms offer these targets as a service to their investment clients, and you can also find them yourself through a paid investment research service. Free options include those provided on Yahoo! Finance.
Source: https://www.thebalancemoney.com/what-is-a-price-target-5195089
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