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General Motors Company (GM) closed the latest trading consultation at $38. 91, gaining 8. 1% over the past four weeks, but there may be plenty of bullish prospects for the stock if the short-term values set by Wall Street analysts are anything that can be beaten. The average price target of $49. 02 indicates a possible 26% upside.
The average includes 20 short-term value targets ranging from a low of $27 to a high of $95, with a deviation of $17. 94. While the lowest estimate indicates a 30. 6% decrease from the existing value level, the maximum positive estimate indicates a 144. 2% cumulation. Rather than range, it is worth noting the deviation here, as it helps to perceive the variability of the estimates. The smaller the deviation, the greater the agreement among analysts.
Although the consensus value target is highly sought after among investors, the skill and impartiality of analysts in setting value targets has long been questionable. And investors who make investment decisions solely on the basis of this tool wouldn’t be doing themselves any favors.
But for GM, an impressive average value target is rarely the only indicator of bullish outlook. A strong consensus among analysts on the company’s ability to report earnings above what they forecast in the past reinforces this view. While a positive trend in earnings estimate revisions is not an indicator of the magnitude of a stock’s potential gains, it has been shown to be an effective predictor of upside.
Here’s What You May Not Know About Analyst Price Targets
According to scholars at various universities around the world, a target value is one of many pieces of information about an inventory that misleads investors far more than it guides them. In fact, empirical studies show that value targets set by multiple analysts, regardless of the degree of agreement, rarely imply where an inventory’s value might actually be headed.
Although Wall Street analysts have an in-depth understanding of a company’s basics and the sensitivity of its activities to economic and commercial issues, many tend to set value targets that are too positive. Wondering why?
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. In other words, business incentives of firms covering a stock often result in inflated price targets set by analysts.
However, a narrow grouping of value targets, represented by a small popular deviation, indicates that analysts largely agree on the direction and magnitude of a stock’s value movement. While this doesn’t necessarily mean that the stock will reach half the price, it’s worth targeting, it may just be a smart starting point for further studies to identify potential basic driving forces.
That said, while investors should not entirely ignore price targets, making an investment decision solely based on them could lead to disappointing ROI. So, price targets should always be treated with a high degree of skepticism.
Here’s Why There Could Be A Lot Of Benefits At GM
Analysts are positive about the company’s earnings outlook, as indicated by their strong agreement on the upward revision of EPS estimates. And that may be a valid explanation for why to expect inventory to increase. After all, empirical studies show a strong correlation between trends in earnings estimate revisions and near-term inventory price movements.
Over the past 30 days, the Zacks consensus estimate for the current year has increased by 17. 7%, as six estimates increased and one decreased.
Moreover, GM currently has a Zacks Rank #2 (Buy), which means it is in the top 20% of more than the 4,000 stocks that we rank based on four factors related to earnings estimates. Given an impressive externally-audited track record, this is a more conclusive indication of the stock’s potential upside in the near term. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
Therefore, while the consensus price target may not be a reliable indicator of GM’s potential profits, the direction of price action it implies appears to be a smart indicator.
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