FNArena’s Weekly Insights – June 22 2020
Dear time-poor investor: stockbroker price targets can be a handy tool for investors, when treated with intelligence and experience
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Price Targets Can Be Your Friend
By Rudi Filapek-Vandyck, Editor FNArena
I haven’t written about stockbroker price targets and consensus targets for a while, plus I received a number of questions about them recently. Time for an update.
Let’s assume I like a certain company and I would like to buy its shares and add to my investment portfolio.
I might have an idea about what this company does, and how it’s positioned in an overall groovy looking industry.
There is a past record to pay attention to, and forecasts are available too. I might even look at a price chart to see how the share price has performed and how volatile it is.
But how much do I think the shares are worth?
It’s an intriguing question and one that can potentially elicit endless discussions about Ben Graham’s base principles and how much of an influence low inflation and bond yields near historical lows exert on a company’s valuation in modern times.
There is also the added observation that an extremely low valuation is seldom an indication of a low risk, sustainable longer-term investment while an above-average Price-Earnings (PE) ratio is not necessarily a harbinger of a share price crash that hasn’t yet happened.
In reality, many of the stocks trading on higher PE ratios have proven a much better investment than peers on low PEs, and this has been going on for many years now.
So why don’t I leave this to the experts who are paid to follow and analyse stocks as a full-time occupation?