How Price Targets Help Investors

Hi, this is Cameron Hight from Alpha Theory.  

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In my last post, we discussed why it's important to come up with price targets.  

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In this one, we'll discuss some evidence that supports that case.  

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What we did is we analyzed the million plus price target forecasts that we had in our system.  

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Then, we put them into two buckets.

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One bucket is positions that the analysts took the time to come up with a price target.  

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The other bucket has no price target.  

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And so, what we did is we measured what is the return on invested capital of each.  

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The return on invested capital on the positions where the analyst took the time to come up with the price target was 6.5%.  

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The ones where they didn't was -0.4%.

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And so, either the ones with price targets are more predictive and they are generating higher returns, or the ones that you haven't done as much research on are drags on the portfolio.  

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Either way, price targets are valuable. Thanks.  

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