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e.l.f. Beauty Is Considered a Good Investment by Brokers: Is That True?

Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?

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 e.l.f. Beauty (NYSE: ELF).

e.l.f. Beauty currently has an average brokerage recommendation of 1.38, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 16 brokerage firms. An ABR of 1.38 approximates between Strong Buy and Buy.

Of the 16 recommendations that derive the current ABR, 13 are Strong Buy, representing 81.3% of all recommendations.

Brokerage Recommendation Trends for ELF

While the ABR calls for buying e.l.f. Beauty, 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 a stock they cover often results in ...