HomeMost PopularTech StocksIs Docebo (DCBO) a Buy as Wall Street Analysts Look Optimistic?

Is Docebo (DCBO) a Buy as Wall Street Analysts Look Optimistic?

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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 stockโ€™s price, do they really matter?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, letโ€™s see what these Wall Street heavyweights think about Docebo Inc. (DCBO).

Docebo currently has an average brokerage recommendation (ABR) of 1.33, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 12 brokerage firms. An ABR of 1.33 approximates between Strong Buy and Buy.

Of the 12 recommendations that derive the current ABR, nine are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 75% and 16.7% of all recommendations.

Brokerage Recommendation Trends for DCBO

Broker Rating Breakdown Chart for DCBO

Check price target & stock forecast for Docebo here>>>

The ABR suggests buying Docebo, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.

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 โ€œStrong Buyโ€ recommendations for every โ€œStrong Sellโ€ 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 stockโ€™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.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stockโ€™s price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.

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 โ€” 1 to 5.

It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employersโ€™ vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Should You Invest in DCBO?

In terms of earnings estimate revisions for Docebo, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $0.85.

Analystsโ€™ steady views regarding the companyโ€™s earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Docebo. You can see the complete list of todayโ€™s Zacks Rank #1 (Strong Buy) stocks here >>>>

It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Docebo.

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

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