When it comes to deciding whether to buy, sell, or hold a stock, many investors rely on recommendations from Wall Street analysts. But do these recommendations truly hold weight? Let’s take a look at what these influential figures have to say about Alibaba (BABA).
Currently, Alibaba has an average brokerage recommendation (ABR) of 1.17, indicating a strong buy sentiment based on ratings from 15 brokerage firms. Of these recommendations, 13 are designated as strong buys and one as a buy, accounting for 86.7% and 6.7% respectively.
Examining BABA’s Brokerage Recommendation Trends
While the ABR suggests that purchasing Alibaba shares might be a good move, it’s essential to remember that brokerage recommendations have limited success in predicting a stock’s future price movement. Analysts at these firms often exhibit a positive bias towards stocks they cover due to their vested interests. In fact, for every “strong sell” recommendation, brokerage firms issue five “strong buy” recommendations.
For a more reliable indicator of near-term price performance, it’s recommended to use the Zacks Rank. This proprietary stock rating tool divides stocks into five groups ranging from a strong buy (Zacks Rank #1) to a strong sell (Zacks Rank #5). The Zacks Rank is based on earnings estimate revisions, which are highly correlated with stock price movements.
The Difference Between ABR and Zacks Rank
Although both ABR and Zacks Rank use a scale from 1 to 5, they should not be confused. ABR is based solely on brokerage recommendations, whereas Zacks Rank takes earnings estimate revisions into account. While ABR is more likely to be influenced by brokerage bias, the Zacks Rank provides a quantitative analysis of a stock’s potential.
Furthermore, the Zacks Rank applies its different grades proportionately across all stocks, ensuring a balanced representation. Unlike ABR, the Zacks Rank is updated in real-time as analysts revise their earnings estimates in response to changing business trends.
Investing in BABA: A Promising Opportunity?
Considering the earnings estimate revisions for Alibaba, the Zacks Consensus Estimate for the current year has seen a substantial increase of 26.8% over the past month, reaching $8.62. This growth is a result of analysts’ optimism about the company’s future earnings prospects. Combined with other factors related to earnings estimates, Alibaba has been assigned a Zacks Rank #1 (Strong Buy).
Although the Buy-equivalent ABR for Alibaba may provide some guidance, investors are advised to conduct their own analysis and consider tools like the Zacks Rank for a more comprehensive evaluation.