Wall Street analysts’ suggestions can sway investors’ decisions on stock trades. But are these analysts truly reliable guides for your investment strategy? Let’s delve into the mysterious world of brokerage recommendations and how it affects the popular streaming giant, Netflix (NFLX).
The Numbers Behind Netflix (NFLX)
Netflix currently boasts an Average Brokerage Recommendation (ABR) of 1.91, blending Strong Buy and Buy ratings assigned by 39 brokerage firms. While 53.9% of these recommendations sit at Strong Buy, only 5.1% carry a Buy tag.
Behind the Broker Recommendations for NFLX
Although the ABR advises buying Netflix, solely relying on it for investment decisions may not be ideal. Studies reveal that brokerage recommendations have had limited success in predicting stocks with substantial price hikes. Why does this happen?
Brokerage firms’ tendency to positively rate the stocks they cover stems from their vested financial interests in these assets. Our research uncovers a significant bias towards favorable ratings, with five “Strong Buy” recommendations for every “Strong Sell.” Therefore, these recommendations may not always align with the reality of a stock’s future trajectory.
For a more dependable investment insight, consider cross-referencing the ABR with the Zacks Rank, a reputable stock rating tool known for its reliable track record in gauging near-term stock performance.
ABR vs. Zacks Rank
It’s crucial to differentiate between the ABR and Zacks Rank. While the ABR reflects brokerage recommendations, the Zacks Rank relies on quantitative models analyzing earnings estimate revisions. The efficacy of the Zacks Rank in predicting stock movements far surpasses that of traditional brokerage ratings.
Moreover, while the ABR may lack real-time accuracy, the Zacks Rank swiftly incorporates updated earnings estimates, offering a more timely reflection of a stock’s future performance.
Is Netflix (NFLX) a Worthy Investment?
Netflix holds a Zacks Consensus Estimate of $18.31 for the current year, signaling a stable earnings outlook. This consistency has led to a Zacks Rank #3 (Hold) for the streaming giant, showcasing a balanced view on its future prospects.
Considering the static nature of the earnings estimate and the Zacks Rank, caution may be advisable before jumping onto the Buy-equivalent ABR for Netflix.