When making investment decisions, many investors turn to analyst recommendations for guidance. These recommendations, often reported by sell-side analysts employed by brokerage firms, can influence a stock’s price. But how reliable are they and should you base your investment decisions on them? Let’s analyze what Wall Street heavyweights think about BYD Co., Ltd. (BYDDY).
BYD Co., Ltd. currently has an average brokerage recommendation (ABR) of 1.00, on a scale of 1 to 5 (Strong Buy to Strong Sell). This ABR is calculated based on actual recommendations from four brokerage firms. An ABR of 1.00 suggests a Strong Buy. All four recommendations for BYDDY are Strong Buy, representing 100% of all recommendations.
Brokerage Recommendation Trends for BYDDY
It is important to note that while the ABR indicates a buy recommendation, solely relying on this information may not be wise. Numerous studies have shown that brokerage recommendations have limited success in predicting stock price appreciation. One reason for this is the strong positive bias of analysts towards the stocks they cover due to the vested interests of their employers. Research has found that for every “Strong Sell” recommendation, brokerage firms assign five “Strong Buy” recommendations. Therefore, it is best to use these recommendations as a validation tool alongside your own research or other indicators that have a proven track record in predicting stock price movements.
One such indicator is the Zacks Rank, a proprietary stock rating tool that categorizes stocks into five groups based on their earnings estimate revisions. The Zacks Rank ranges from #1 (Strong Buy) to #5 (Strong Sell) and is a reliable indicator of a stock’s future price performance. Validating the ABR with the Zacks Rank can help in making a profitable investment decision.
ABR Should Not Be Confused With Zacks Rank
Although both the ABR and Zacks Rank appear on a scale from 1 to 5, they are different measures with different methodologies. The ABR is based solely on broker recommendations and is typically displayed in decimals. On the other hand, the Zacks Rank is a quantitative model that uses earnings estimate revisions as inputs and is displayed in whole numbers.
Analysts employed by brokerage firms are known for their overly optimistic recommendations due to the vested interests of their employers. This often leads to favorable ratings that may not be supported by thorough research and can misguide investors more often than help them. In contrast, the Zacks Rank is driven by unbiased earnings estimate revisions, and research has shown a strong correlation between these revisions and near-term stock price movements.
Furthermore, the Zacks Rank is consistently applied to all stocks for which brokerage analysts provide current-year earnings estimates, ensuring a balanced distribution among the five ranks.
One notable difference between the ABR and Zacks Rank is freshness. The ABR may not always be up-to-date, while the Zacks Rank reacts quickly to changes in earnings estimates, as analysts constantly revise their estimates to reflect changing business trends.
Is BYDDY a Good Investment?
In terms of earnings estimate revisions for BYD Co., Ltd., the Zacks Consensus Estimate for the current year has declined 0.2% over the past month to $2.35. Analysts’ increasing pessimism about the company’s earnings prospects, as evident from the consensus estimate revisions, could potentially lead to a decline in the stock’s price in the near term.
The recent decline in the consensus estimate, along with other factors related to earnings estimates, has resulted in a Zacks Rank #4 (Sell) for BYD Co., Ltd. It is important to consider this information alongside the Buy-equivalent ABR when evaluating the investment potential of BYDDY.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.