What It Is:
How It Works/Example:
Analysts regularly evaluate and project stock performance. Analysts may provide this service on behalf of a particular brokerage house, or for private clients, or even for public dissemination through reports and investment publications. Analysts will evaluate the financial conditions of an underlying security and any competitive information available about the industry. Based on this analysis, a stock may be described along a range from the lowest rating, "strong sell," (i.e. not expected to perform well or recover) to the highest rating, "strong buy" (i.e. big performance gains expected). Analysts generally use the term "underperform" to refer to a stock that is fundamentally stable, but expected to perform below the market or industry sector to which the stock belongs. The category “underperform” is alternatively referred to as "moderate sell" or "weak hold."
Why It Matters:
Investors can gather valuable information from analysts' recommendations about particular stocks. Not all analysts' recommendations are consistent or based on the same measures of a company's activities or expected performance. Understanding and weighing varying recommendations is an important part of an investor's work.