When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock’s price, but are they really important?
Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let’s see what these Wall Street heavyweights think about Wix.com (NASDAQ: WIX).
Wix.com currently has an average brokerage recommendation of 1.68, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 19 brokerage firms. An ABR of 1.68 approximates between Strong Buy and Buy.
Of the 19 recommendations that derive the current ABR, 11 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 57.9% and 15.8% of all recommendations.
Brokerage Recommendation Trends for WIX
The ABR suggests buying Wix.com, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.
Are you wondering why? The vested interest of brokerage firms in a stock they cover …