Every investor is keen on heeding Wall Street analysts’ advice before deciding on a stock. Countless articles and shows have probably pondered how much an analyst’s perspective can influence a stock’s fate. However, hold your horses before you base your investment choices solely on their proclamations. Let’s take a peek at what the Wall Street bigwigs are saying about PDD Holdings Inc. (PDD).
Wave the green flag? PDD Holdings Inc. currently scores a fair average brokerage recommendation (ABR) of 1.23 on a scale from 1 to 5 (Strong Buy to Strong Sell), derived from the composite suggestions made by 11 brokerage firms. This rating oscillates between Strong Buy and Buy.
Out of the 11 decisive recommendations shaping the current ABR, a whopping nine are Strong Buy, with a solitary Buy. That’s a sizeable 81.8% for Strong Buy and 9.1% for Buy, forming the bulk of all recommendations.
The Story of PDD’s Brokerage Recommendations
The ABR seems to signal a green light for PDD Holdings Inc., yet blindly making investment decisions based on this metric could be as futile as chasing after a mirage. According to a number of studies, brokerage recommendations often hit a dead-end when it comes to pinpointing stocks with the most potential for price growth.
Coming in hot, I’ll bet you’re wondering why. Here’s a reality check – these brokerage firms aren’t exactly impartial judges. Their vested interests in the stocks they cover tend to cast a rosy glow over their analysts’ ratings. Our findings reveal that for every “Strong Sell” endorsement, brokerage houses dole out five “Strong Buy” nods.
This lopsidedness means that their motivations don’t always align with those of retail investors, providing scant insight into a stock’s future trajectory. It’s smart to use such insights to corroborate your own analysis or a reliable tool known for accurately predicting stock movements.
Enter Zacks Rank—it’s our bespoke stock rating tool that comes with a solid audited track record. It sorts stocks into five distinct groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), skillfully forecasting a stock’s near-future price performance. Thus, leveraging the ABR to validate the Zacks Rank might just be the smart call for a lucrative investment.
ABR Is Not the Same as Zacks Rank
Although both ABR and Zacks Rank share a 1 to 5 rating scale, they stand poles apart.
ABR hinges solely on brokerage recommendations and often comes with decimals (e.g., 1.28). Conversely, the Zacks Rank employs a quantitative model that harnesses the potential of earnings estimates revisions, expressed in whole numbers — 1 to 5.
It’s an open secret that brokerage analysts tend to be overly optimistic in their recommendations, all due to their employers’ vested interests. Their ratings often align more with wishful thinking, leaving investors in the dark more often than not.
Contrariwise, the Zacks Rank revolves around earnings estimate revisions. Research handily demonstrates a strong bond between shifts in earnings estimates and stock movements in the short term.
Another crucial difference? ABR tends to go stale, while Zacks Rank stays fresh to gauge what’s next. With brokerage analysts always revising estimates to keep up with a company’s ebbing and flowing trends, Zacks Rank swiftly assimilates these shifts, giving timely cues about future movements in stock prices.
Feast or Famine for PDD Holdings Inc.?
Zeroing in on PDD Holdings Inc.’s earnings estimate revisions, the Zacks Consensus Estimate for the current year has slipped by 4% in the last month, settling at $4.82.
As analysts lean toward a bleaker outlook for the company’s earning potential, a consensus groove in lowering EPS estimates looms large, potentially puncturing the stock in the foreseeable future.
The substantial tweak in the consensus estimate, along with three other earnings-related indicators, has scored a Zacks Rank #4 (Sell) for PDD Holdings Inc. Take a look at the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
So, it’s prudent to take the ABR’s Buy-equivalent rating for PDD Holdings Inc. with a pinch of skepticism.
Zacks Lets Slip the “Sleeper” Stock: ChatGPT
Endorsing an under-the-radar company at the heart of the exceptionally booming Artificial Intelligence sphere, Zacks makes a daring prediction of a staggering $15.7 Trillion economic impact by the AI industry in 2030.
As a bonus, Zacks is gifting readers with a report unveiling this explosive growth stock along with 4 other “must haves”. And more.
The opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.