As a quick and dirty test to see how stock performance reflects analyst recommendations, we looked at a few data points for 206 stocks on the TSX composite. Weextractedtheyear-to-date total returns as at July 27, 2009 and the analyst recommendation consensuses for six months ago. The rating scale goes from 0-5 and in theory, the higher the consensus numbersin January of this year, the better potential for the stock.Better potential should translate into a higher return. Of these 206 stocks, 123 of them performed below the TSX compositeyear-to-date return of 22.8%. The average and mean returns for these companies were (0.6%) and 1.3% respectively. The 86 companies which outperformed the TSX had an average return of 72.7% and mean return of 47.6%, both considerably higher than the underperformers.
The suprise was the analyst consensus numbers. The mean analyst recommendation for both winners and losers tied at 4.1. The average recommendaton for winners was also 4.1, only 5% ahead of losers at 3.9. Of the stocks which underperformed the TSX, 51% were given an analyst recommendation of over 4.0. A total of 59% of the outperformers had a consensus of over 4.0. So while theory says the outperformers should have better numbers, practice seems to say something very different.
If you would likea spreadsheet with the companies and their year-to-date returns and consensus numbers, please leave a comment on this blog or email me at phil.froats@canadianbusiness.rogers.com
Blogs & Comment
Analyst Recommendation Performance
By CB Staff
As a quick and dirty test to see how stock performance reflects analyst recommendations, we looked at a few data points for 206 stocks on the TSX composite. Weextractedtheyear-to-date total returns as at July 27, 2009 and the analyst recommendation consensuses for six months ago. The rating scale goes from 0-5 and in theory, the higher the consensus numbersin January of this year, the better potential for the stock.Better potential should translate into a higher return. Of these 206 stocks, 123 of them performed below the TSX compositeyear-to-date return of 22.8%. The average and mean returns for these companies were (0.6%) and 1.3% respectively. The 86 companies which outperformed the TSX had an average return of 72.7% and mean return of 47.6%, both considerably higher than the underperformers.
The suprise was the analyst consensus numbers. The mean analyst recommendation for both winners and losers tied at 4.1. The average recommendaton for winners was also 4.1, only 5% ahead of losers at 3.9. Of the stocks which underperformed the TSX, 51% were given an analyst recommendation of over 4.0. A total of 59% of the outperformers had a consensus of over 4.0. So while theory says the outperformers should have better numbers, practice seems to say something very different.
If you would likea spreadsheet with the companies and their year-to-date returns and consensus numbers, please leave a comment on this blog or email me at phil.froats@canadianbusiness.rogers.com