@jiantan86, Thanks for sharing the article. I often find that...

@jiantan86,

Thanks for sharing the article.

I often find that what articles like that don't say is often of more interest to what they do say.

In this case, the article dutifully references stockbroker analyst recommendations and target prices, connoting some sort of analytical authority vested in those recommendations and target prices.

But what is omitted is any kind of audit on the veracity on the recommendations and target prices in terms of historical accuracy.

As case in point, the UBS analyst 3 years ago around this time (i.e., July 2016) had an $8.80 target price on GUD, with a NEUTRAL recommendation.
The share price at the time was $9.30

Twelve months later (July 2017) the share price had risen to $12.00, at which point the analyst increased his/her target price to $11.00.
Recommendation changed to SELL.

Twelve months after that (i.e. July 2018), share price reached $14.15.
Target price promptly increased to $13.90.
Recommendation now NEUTRAL (?!)

In January 2019, share price had fallen to $11.10
So target price gets lowered to $12.30
Recommendation now BUY.

Before GUD's result, share price was $10.50
Target price was still $12.30
Recommendation was still BUY

Today, share price is $9.70
Target price has been lowered to $9.50
Recommendation is SELL

So, to summarise:

Not only do the Target Prices follow the share price around (almost perfectly correlated, with Target Prices as lagging indicators), but the recommendation history is as follows:

NEUTRAL at $8.80
SELL at $12.00
NEUTRAL at $14.15
BUY at $11.10
SELL at $9.50


The Macquarie analyst is no better:


July 2016:
Share Price = $9.30
Target Price = $9.90
Recommendation = NEUTRAL

July 2017:
Share Price = $12.00
Target Price = $10.75
Recommendation = NEUTRAL

July 2018:
Share Price = $14.15
Target Price = $16.00
Recommendation = OUTPERFORM

January 2019:
Share Price = $11.10
Target Price = $14.50
Recommendation = OUTPERFORM

Today 2019:
Share Price = $9.70
Target Price = $10.50
Recommendation =NEUTRAL

So, again we see Target Price following the share price around, and also the investment recommendation is NEUTRAL (which is really broker-speak for SELL) when the share price is low, but OUTPERFORM when the price is high.


I don't have access to the Citigroup research, but I strongly suspect it will display the same level of incompetence.

Recommendations and Target Prices generated by stockbroking analysts are, objectively, virtually worthless as investment guides [*].

These are not isolated examples of the ineptitude of this class of financial services professional; I can show you hundreds of examples of this egregious malpractice.

It is the overwhelming norm in the stockbroking community.


If any other professional, such as a doctor, dentist, engineer or a lawyer got things as badly wrong as frequently as stockbroking analysts do, the professional bodies representing those doctors, dentists, engineers, or lawyers would be obliged to de-register them to prevent them from being able to continue practising.


[*] Actually, I take that back. They are probably useful, provided you adopt the opposite position to the one being recommended.

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