Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price Target

What it is:

A price target is an analyst's expectation for the future price of a security. 

How it works (Example):

For example, let's assume that the Jones-Smith investment bank provides research reports about Company XYZ stock. The Jones-Smith analyst studies the industry, Company XYZ's competitors, Company XYZ's products and management, etc. The analyst creates a financial forecast for Company XYZ and determines, based on that forecast, that Company XYZ stock is worth as much as $10 per share right now, even though it's trading at $7 per share. The Jones-Smith analyst therefore sets a $10 price target for the stock, meaning that she expects Company XYZ shares to rise to $10 in the near future (the analyst might also advise investors to sell the shares once they reach $10).

Why it Matters:

Price targets provide insights to investors, but they also provide instruction about when to buy and sell. Additionally, price targets (if widely-followed) can also provide indications about when most other investors are going to buy and sell, which makes for potentially lucrative trading strategies.

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