Investors often rely on analyst recommendations when deciding whether to buy, sell, or hold a stock. Media reports of rating changes by analysts employed by brokerage firms (or sell-side) often influence stock prices, but do they really matter?
Let’s see what Wall Street heavyweights are saying Energy Fuels (UUUU) Before we discuss the reliability of broker recommendations and how to use them to your advantage.
Energy Fuels’ current average brokerage recommendation rating (ABR) is 1.60, which is calculated based on the actual recommendation ratings (Buy, Hold, Sell, etc.) from 5 brokerage firms on a scale of 1 to 5 (Strong Buy to Strong Sell), with an ABR of 1.60 falling midway between Strong Buy and Buy.
Of the five recommendations that have led to the current ABR, three are “Strong Buy” and one is “Buy.” “Strong Buy” and “Buy” account for 60% and 20% of all recommendations, respectively.
UUUU’s Broker Recommendation Trends
Check out Energy Fuels’ price target and stock price forecast here>>>
Although ABR recommends buying Energy Fuels, it may not be a good idea to base your investment decision on this information alone: ​​Several studies have shown that brokerage recommendations are largely ineffective at helping investors select stocks with the best chance of increasing in price.
You might wonder why. A brokerage’s vested interest in the stocks they cover often results in a strong positive bias when analysts evaluate the stock. Our research shows that brokerages assign five “strong buy” recommendations for every one “strong sell” recommendation.
In other words, their interests are not necessarily aligned with those of individual investors, and they rarely indicate where stock prices will actually go. Therefore, the most effective use of this information may be to conduct your own research and examine indicators that have proven to be highly effective in predicting stock price movements.
The Zacks Rank, our proprietary stock rating tool that has a robust, outside-audited track record, categorizes stocks into five groups, from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is a reliable indicator of near-term price movement of stocks. Therefore, examining the Zacks Rank with ABR can be extremely helpful in making profitable investment decisions.
ABR should not be confused with the Zacks Rank.
While the Zacks Rank and ABR are both displayed on a scale of 1 to 5, they are completely different metrics.
The only basis for calculating ABR is the broker recommendation value, which is typically expressed as a decimal (like 1.28), whereas the Zacks Rank is a quantitative model designed to harness the power of earnings estimate revisions and is expressed as a whole number from 1 to 5.
Overly optimistic recommendations have always been and continue to be made by analysts employed by brokerage firms: Due to the vested interests of their employers, these analysts tend to over-estimate their results and mislead investors far more often than they help them.
In contrast, the Zacks Rank is driven by earnings estimate revisions, and empirical research shows that near-term stock price movements are strongly correlated with trends in earnings estimate revisions.
Additionally, the various Zacks Rank grades are applied proportionately to all stocks for which securities analysts provide current-year earnings estimates, meaning the tool always maintains a balance between the five ranks.
Another key difference between the ABR and the Zacks Rank is freshness: ABR is not necessarily current, but the brokerage’s analysts continually revise their earnings estimates to account for a company’s changing business trends, and their actions are reflected quickly enough in the Zacks Rank that it is always timely to indicate future price movements.
Should I invest in UUUU?
In terms of earnings estimate revisions for Energy Fuels, the Zacks Consensus Estimate for the current fiscal year remained unchanged at -$0.11 over the past month.
Analysts’ views on the company’s earnings outlook remain stable, as evidenced by the unchanged consensus estimate, which could justify the company’s stock price moving in line with the broader market in the short term.
The magnitude of recent change in consensus estimates, along with three other factors related to earnings expectations, have earned Energy Fuels a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
Therefore, it may be wise to be a little cautious about energy fuel purchase equivalent ABRs.
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Energy Fuels Inc (UUUU) : Free Stock Analysis Report
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