Examining Wall Street Analysts’ Ratings on Amazon’s Stock

Investors frequently turn to Wall Street analysts for guidance when deciding whether to buy, sell, or hold a stock. Changes in these analysts’ ratings, employed by brokerage firms, can significantly impact a stock‘s price. However, the real question is their reliability.

To evaluate the effectiveness of these recommendations, let’s first take a look at what analysts currently report about Amazon (AMZN).

Current Recommendations for Amazon Stock

Amazon has garnered an average brokerage recommendation (ABR) of 1.11, according to data from 53 brokerage firms, which ranks from 1 (Strong Buy) to 5 (Strong Sell). This rating falls just below the Strong Buy threshold.

A closer examination of the 53 recommendations reveals that 48 are categorized as Strong Buy, while four are classified as Buy. Together, Strong Buy and Buy make up 90.6% and 7.6% of all recommendations, respectively.

To find the latest price targets and stock forecasts for Amazon, click here>>>

Despite a strong recommendation to buy Amazon, making investment decisions solely on this data may be misguided. Research indicates that brokerage recommendations generally have limited success in identifying stocks poised for significant price increases.

Analyzing the Trends Behind Recommendations

Why is this the case? Many brokerage firms possess vested interests in the stocks they analyze, which often skews their ratings positively. Our findings show that for every “Strong Sell” given, there are approximately five “Strong Buy” ratings.

This discrepancy indicates that the interests of brokerage analysts might not align with those of retail investors, leaving little clarity about a stock‘s future price movements. It’s advisable to use this information to complement your own market analysis or employ a proven tool to predict stock price fluctuations.

Comparing ABR and Zacks Rank

Zacks Rank, a proprietary stock rating method, categorizes stocks into five groups, from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). This metric effectively indicates near-term stock performance based on earnings estimate revisions. Thus, validating the ABR against the Zacks Rank may enhance investment decision-making.

Although both Zacks Rank and ABR use a scale from 1 to 5, they measure different elements. The ABR solely relies on brokerage recommendations, often shown in decimal form (e.g., 1.28), whereas the Zacks Rank derives from earnings estimate revisions and displays whole numbers from 1 to 5.

Brokerage analysts tend to be overly optimistic in their ratings due to their companies’ interests, leading to potentially misleading recommendations for investors. Conversely, the Zacks Rank focuses on earnings estimate revisions, which strongly correlate with subsequent stock price movements, as verified by empirical studies.

The Zacks Rank assessments are distributed evenly across all stocks receiving current-year earnings estimates from analysts, maintaining balance among its five ranks. Furthermore, the timeliness of these ranks sets them apart. The ABR may lag, but since brokerage analysts frequently update their earnings estimates, the Zacks Rank promptly reflects these changes, making it a reliable predictor of future stock prices.

Considering an Investment in AMZN?

Looking into Amazon’s earnings projections, the Zacks Consensus Estimate for the current financial year stands unchanged at $6.32 over the past month.

This consistency in analysts’ views regarding Amazon’s earnings prospects might indicate a possible performance alignment with the broader market in the near term.

The recent stability in the consensus estimate, alongside three additional metrics tied to earnings estimates, has led to a Zacks Rank #3 (Hold) for Amazon. To view a complete list of today’s Zacks Rank #1 (Strong Buy) stocks, click here>>>>

Given the above information, it may be wise to approach the Buy-equivalent ABR for Amazon with caution.

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Amazon.com, Inc. (AMZN): Free Stock Analysis report

This article was originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein represent those of the author and do not necessarily reflect those of Nasdaq, Inc.