Before taking the plunge into investing, many turn to the suggestions of Wall Street analysts. These recommendations, though they have the power to sway a stock’s price, may not always hold true. So, as much as Wall Street has to say about Nu Holdings Ltd. (NU), it’s crucial to analyze the reliability of their suggestions to your benefit.
What Wall Street Says about Nu Holdings Ltd.
Currently, Nu Holdings Ltd. holds an average brokerage recommendation (ABR) of 1.63, painting a picture between Strong Buy and Buy. This ABR is derived from the actual recommendations of 12 brokerage firms, with eight Strong Buy recommendations, making up 66.7% of all suggestions.
Brokerage Recommendation Trends for NU
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While the ABR suggests a buy, depending on this information alone may not be a wise choice. Research shows that brokerage recommendations are not always successful in guiding investors towards stocks with significant price appreciation potential. Their vested interests often lead to a bias.
The Zacks Rank, however, classifies stocks based on past performance, resulting in a more dependable indicator of future price moves. It’s a quantitative model that uses earnings estimate revisions to rank stocks from #1 (Strong Buy) to #5 (Strong Sell).
Zacks Rank Vs. ABR
Although both measures use a 1-5 scale, they are different. The ABR leans on brokerage recommendations, while the Zacks Rank focuses on earnings estimate revisions.
Brokerage analysts tend to be overly optimistic due to their employers’ interests, misleading investors more often than guiding them. On the other hand, the Zacks Rank is driven by earnings estimate revisions, proven to correlate with stock price movements.
The Zacks Rank is also continually updated, reflecting the latest earnings estimate revisions, while the ABR may become outdated. This feature ensures timely predictions of future stock prices.
Is NU a Sound Investment?
Regarding Nu Holdings Ltd.’s earnings estimate revisions, the Zacks Consensus Estimate for the current year has remained unchanged at $0.24 over the past month. This consistent view could mean the stock will perform in line with the broader market in the near term, resulting in a Zacks Rank #3 (Hold) for NU.
Given this perspective, it might be prudent to exercise caution with the Buy-equivalent ABR for Nu Holdings Ltd.
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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.
