Do Wall Street Analysts’ Recommendations Really Matter for Amazon?
When it comes to making investment decisions, many investors turn to the recommendations of Wall Street analysts. These brokerage-firm-employed analysts are often seen as experts in their field and their recommendations can have a significant impact on a stock’s price. But do these recommendations really matter, especially when it comes to a tech giant like Amazon (AMZN)? Let’s take a closer look at the recommendations for Amazon and explore the reliability of brokerage recommendations and how to use them to your advantage.
Understanding Brokerage Recommendations for Amazon
Currently, Amazon has an average brokerage recommendation (ABR) of 1.14, on a scale of 1 to 5, with 1 indicating a Strong Buy and 5 indicating a Strong Sell. The ABR is calculated based on the actual recommendations made by 39 brokerage firms. In the case of Amazon, the ABR of 1.14 suggests that the majority of brokerage firms are recommending to either Buy or Strong Buy the stock. Out of the 39 recommendations that contribute to the ABR, 34 are Strong Buy and four are Buy. This means that 87.2% of all recommendations are Strong Buy, while 10.3% are Buy.
While the ABR for Amazon suggests a positive outlook, it is important to note that relying solely on brokerage recommendations may not be wise. Numerous studies have shown limited success in using brokerage recommendations to pick stocks with the best price increase potential. This is because brokerage firms have a vested interest in the stocks they cover, which often results in a strong positive bias from their analysts. In fact, for every “Strong Sell” recommendation, brokerage firms assign five “Strong Buy” recommendations. As a result, their recommendations may not always align with retail investors and may not accurately predict the future price of a stock.
Using Brokerage Recommendations to Validate Your Research
While brokerage recommendations may not be the most reliable tool for predicting stock prices, they can still serve a purpose in validating your own research or using them in combination with other indicators that have proven to be successful. One such indicator is the Zacks Rank, a proprietary stock rating tool with an impressive track record.
The Zacks Rank categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). It is based on earnings estimate revisions and has been shown to have a strong correlation with near-term stock price movements. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.
Understanding the Difference Between ABR and Zacks Rank
It is important to note that there is a key difference between the ABR and Zacks Rank. While both measures are displayed on a scale of 1 to 5, they are calculated differently and serve different purposes.
The ABR is based solely on brokerage recommendations and is typically displayed in decimals. It represents the consensus opinion of brokerage analysts on a stock’s potential performance.
On the other hand, the Zacks Rank is a quantitative model based on earnings estimate revisions. It is displayed in whole numbers and is designed to predict a stock’s future price performance. The Zacks Rank takes into account the consensus estimate for the current year and assigns a rank based on the magnitude of the change in earnings estimates. It is a predictive tool that maintains a balance among the five ranks it assigns.
Should You Invest in Amazon?
In the case of Amazon, the Zacks Consensus Estimate for the current year has increased by 37.9% over the past month to $2.16. This strong agreement among analysts in revising EPS estimates higher indicates growing optimism about the company’s earnings prospects. As a result, Amazon currently holds a Zacks Rank #1 (Strong Buy).
While the Buy-equivalent ABR for Amazon may serve as a useful guide for investors, it is important to consider other factors and conduct your own research before making any investment decisions.
Ultimately, the recommendations of Wall Street analysts should not be the sole basis for your investment decisions. They can serve as a starting point or a validation tool, but it is crucial to conduct your own research and consider a range of factors, including your own risk tolerance and investment goals, before making any investment decisions.
Analyst comment
This news is neutral. Based on the information provided, it is important to consider other factors and conduct your own research before making any investment decisions. Wall Street analysts’ recommendations may serve as a starting point or a validation tool, but it is crucial to consider a range of factors, including your own risk tolerance and investment goals, before making any investment decisions.
