The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?
Let's take a look at what these Wall Street heavyweights have to say about Dynatrace (NYSE: DT) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Dynatrace currently has an average brokerage recommendation of 1.55, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 31 brokerage firms. An ABR of 1.55 approximates between Strong Buy and Buy.
Of the 31 recommendations that derive the current ABR, 22 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 71% and 3.2% of all recommendations.
Brokerage Recommendation Trends for DT
While the ABR calls for buying Dynatrace, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.
Are you wondering why? The vested interest of brokerage firms in ...
