HomeMost PopularTech StocksIs Rigetti Computing (RGTI) a Buy as Wall Street Analysts Look Optimistic?

Is Rigetti Computing (RGTI) a Buy as Wall Street Analysts Look Optimistic?

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When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stockโ€™s price, but are they really important?

Letโ€™s take a look at what these Wall Street heavyweights have to say about Rigetti Computing, Inc. (RGTI) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.

Rigetti Computing currently has an average brokerage recommendation (ABR) of 1.25, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by four brokerage firms. An ABR of 1.25 approximates between Strong Buy and Buy.

Of the four recommendations that derive the current ABR, three are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 75% and 25% of all recommendations.

Brokerage Recommendation Trends for RGTI

Broker Rating Breakdown Chart for RGTI

Check price target & stock forecast for Rigetti Computing here>>>

While the ABR calls for buying Rigetti Computing, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every โ€œStrong Sellโ€ recommendation, brokerage firms assign five โ€œStrong Buyโ€ recommendations.

In other words, their interests arenโ€™t always aligned with retail investors, rarely indicating where the price of a stock could actually be heading. Therefore, the best use of this information could be validating your own research or an indicator that has proven to be highly successful in predicting a stockโ€™s price movement.

With an impressive externally audited track record, our proprietary stock rating tool, the Zacks Rank, which classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stockโ€™s near -term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.

Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers โ€” 1 to 5.

Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the ratings issued by these analysts are more favorable than their research would support because of the vested interest of their employers, they mislead investors far more often than they guide.

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.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

Another key difference between the ABR and Zacks Rank is freshness. The ABR is not necessarily up-to-date when you look at it. But, since brokerage analysts keep revising their earnings estimates to account for a companyโ€™s changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in indicating future price movements.

Is RGTI a Good Investment?

In terms of earnings estimate revisions for Rigetti Computing, the Zacks Consensus Estimate for the current year has increased 21.2% over the past month to -$0.26.

Analystsโ€™ growing optimism over the companyโ€™s earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason for the stock to soar 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 #2 (Buy) for Rigetti Computing. You can see the complete list of todayโ€™s Zacks Rank #1 (Strong Buy) stocks here >>>>

Therefore, the Buy-equivalent ABR for Rigetti Computing may serve as a useful guide for investors.

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This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks arenโ€™t winners but this one could far surpass earlier Zacksโ€™ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

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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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