In This Article:
Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?
Let's take a look at what these Wall Street heavyweights have to say about OneSpan (OSPN) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
OneSpan currently has an average brokerage recommendation (ABR) of 1.80, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by five brokerage firms. An ABR of 1.80 approximates between Strong Buy and Buy.
Of the five recommendations that derive the current ABR, three are Strong Buy, representing 60% of all recommendations.
Brokerage Recommendation Trends for OSPN
Check price target & stock forecast for OneSpan here>>>
While the ABR calls for buying OneSpan, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.
Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.
With an impressive externally audited track record, our proprietary stock rating tool, the Zacks Rank, which classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stock's near -term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.
ABR Should Not Be Confused With Zacks Rank
Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.
The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.