The Price Target Is a Signal
Welcome to issue #34 of The Davem Dish. Every week I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship and life in general because the same principles apply — keep it simple, stay consistent and focus on what matters.
A Reddit thread caught my attention last week. Someone asked what a price target actually was. They’d read that Morgan Stanley set a $650 target on Meta, and wanted to know how much weight to give it. Is it a forecast? A recommendation? Something you should factor into a buy or sell decision?
It made me think of when I had the same questions. Why were professional analysts price targets so varied on the same stock and what exactly do they mean? It took me a while to find out, and it turned out to be part of a larger pattern I now watch for. A lot of tools that are confusing for individual investors are not actually designed for them. They are built for institutions. Price targets are one of them and once you understand how they came to exist, who they’re actually for, and what the research says about their accuracy, the whole thing looks less like an investment tool and more like another game you should stay away from.
Let’s go through it.
An Example
Back in October 2025, I added Celestica (CLS) Watchlist. The stock was already up 194% year to date, and trading around $273. At that time, RBC Capital’s target was $53. TD Securities had just moved from $130 to $238, a change they were framing as a downgrade, even though the number nearly doubled, because the stock was already running past their old estimate. Over the following six months, the targets kept climbing. TD Cowen raised to $430 in April 2026. Susquehanna went to $510. The consensus today sits between $328 and $427 depending on where you look.
That’s a target progression from $53 to over $500 in about two years on the same company. The analysts weren’t leading the market. They were watching the price and revising to catch up, and calling it analysis after the fact.
An investor who sold at the original $53 target would have missed the entire run. And an investor watching all of this trying to understand what a target actually meant was thoroughly confused.
This example isn’t unusual. It’s how the game normally works and to understand why, it helps to know what these numbers are and where they came from.
What a Price Target Actually Is
A price target is a sell-side (investment banks and brokerages) analyst’s projection of where a stock should trade over a defined horizon, almost always twelve months out. It sits alongside a buy, hold, or sell rating and it’s meant to communicate what the analyst thinks the stock is worth. Individual investors tend to read it as a prediction. Inside the industry, it functions as a marketing artifact, a client servicing tool, and a benchmark for portfolio managers to argue against or lean on.
The methodology behind the number is usually one of a few things. For profitable companies, analysts use a multiples approach, projected earnings per share times an assumed P/E ratio or a discounted cash flow (DCF) model, where the analyst projects free cash flows for years into the future and discounts them back to present value. For unprofitable companies, or ones with negative cash flow, they fall back on revenue multiples, sum-of-the-parts valuations, or path-to-profitability models that assume when the company will start making money and what margins will look like when it does.
All of these approaches are sensitive to their inputs. Change a growth rate assumption by a percentage point or two, adjust the discount rate a bit, push the profitability point out a year, and the output can swing 30% or more. The methods themselves are standard finance. The problem is that the inputs are guesses, and the output ranges wide enough that an analyst can honestly justify almost any number they want to publish. The complexity of DCF in particular gives an appearance of thoroughness that the outputs don’t really earn. I also use a DCF in my framework but only used as a check, not the primary analysis tool.
A Short History
Price targets weren’t always a standard product. Before the 1990s, analyst reports carried recommendations and earnings forecasts, but publishing a specific twelve month per share number wasn’t common practice. The dotcom era changed that. Banks were competing hard for IPO and M&A mandates, analysts were becoming quasi-salespeople for those services, and a headline number was a natural way to generate attention. The target became a marketing device before it was ever an investment tool.
Then came the scandals. In 2002, an investigation of Merrill Lynch surfaced internal emails where analysts privately described stocks they were publicly recommending as “junk” and worse. The 2003 Global Analyst Research Settlement followed, with ten of the largest investment firms paying $1.4 billion in fines and restitution. Structural firewalls were mandated between banking and research, analyst compensation was separated from banking revenue, and the industry got a superficial facelift.
What didn’t change was the underlying incentive economy. Analysts still needed corporate access. Brokerage revenue still depended on trading activity. Institutional clients still expected a number. The visible abuses got cleaned up while the infrastructure that produced them stayed largely intact.
Who These are Actually For
The audience these targets were built for is almost entirely institutional — portfolio managers at pensions, endowments, mutual funds, insurance companies, and hedge funds — the buy-side. These are people who have to justify their decisions to a committee, a client, or a board, and a Morgan Stanley target gives them cover. A State Street study of 200 institutional investors found that career risk was the single biggest factor in their decision making. If a portfolio manager buys a name after a major bank upgrades it and the trade goes wrong, they can point to the upgrade. Buy the same name without the analyst’s blessing and take the same loss, and they’ve got some explaining to do.
Look at Broadcom (AVGO) as an example. S&P Global’s aggregation of 48 analysts covering Broadcom shows a low target of $216 and a high of $650. Same company, same public filings, and one analyst thinks the stock is worth roughly half of where it’s currently trading while another thinks it’s worth nearly double. That’s a 200% spread on a single stock. If rigorous DCF work reliably produced fair value estimates, the range would be tight. The range tells you the models are backing into whatever number each analyst wants to publish, for reasons that have more to do with banking relationships and brokerage positioning than with what the business is actually worth.
Which means a specific target is telling you where one analyst has planted their flag inside an ongoing institutional conversation. What really matters isn’t the flag itself, but when someone moves theirs.
That’s why revisions drive the price action. When an analyst revises, trading desks get busy, institutional clients call for insight, and the firm gets paid. Every target change is as much a business development event as it is research.
It also generates herding. Academic research has documented that institutional investors buy the same stocks after upward revisions and sell the same stocks after downward ones, which contributes to the sharp price moves that follow. The revision is a coordination signal for a large group of buyers and sellers who all read the same numbers. That signal moves prices whether the underlying analysis is right or not.
Everything that flows down to your Yahoo Finance headline is the byproduct of a conversation that was never really about you.
What the Research Says
For a piece of information the industry treats as important, the track record is bad.
Studies of sell-side forecasting ability have found that only 24-45% of price targets are met over their twelve month horizon, and there’s no evidence that individual analysts can consistently forecast better than others. An academic study found a mean absolute error of 39% at the one year horizon and directional accuracy of about 54%, barely better than a coin flip.
The errors also skew in a specific direction. Analyst targets are systematically optimistic. Research by Brav and Lehavy found the average target implied a 28% return over the following 12 months — well above any realistic long-run average for stocks. Analysts consistently forecast 25-35% annual appreciation while realized returns average closer to 10-12%, roughly the long-run market average.
Post-Global Settlement research continues to find optimism bias correlated with banking relationships and brokerage client positioning. The firewalls got built, but the analyst who publishes a bearish target still risks losing corporate access — the phone calls, private meetings, and insight that makes them useful to institutional clients. Access is the currency of the job, and bearish research burns it fast.
Pitfalls to Avoid
Even understanding all of that, a few specific traps catch people who use targets as decision inputs.
The first is that the market reacts to the change in the target, not the level. A cut from $700 to $600 on a stock trading at $400 can drop the stock 5% that day even though the new target still implies 50% upside. Foundational research from the 1990s found upgrades producing about a 3% three-day price jump and downgrades producing about a 4.7% hit. The direction of the revision carries more information than the number itself, which is a strange thing when you think about it. If a target is meant to represent fair value, why does the market care so much whether the analyst nudged it up or down?
The second trap is that a target anchors your exit thinking to someone else’s guess. Once a number is in your head, it becomes a mental sell trigger. You bought a stock at $100, the consensus target is $180, so that’s where you’re planning to sell. You’ve now handed the most important variable in your investment, when to exit, to a group of people who miss two-thirds of the time and whose errors are systematically optimistic. Worse, their targets are updating in the background based on what the stock is already doing, which means your exit thinking is being dragged around by numbers that were catching up to the price in the first place.
That’s a strange person to trust with the decision.
What Targets Actually Tell You
This doesn’t mean you should ignore targets entirely. They’re not useful as predictions, but they are useful signals about how herd behavior moves prices.
If you already own a stock and the analysts catch up and upgrade, that’s a catalyst for the price to move higher, driven by all the portfolio managers who now have a reason to buy. You want to see this. It’s similar to a beat and raise on an earnings report. The same kind of buying coordination event, just triggered differently. Conversely, for a company on your watchlist where you’re waiting for an entry point, a target downgrade will likely push the price lower, sometimes to a level where you now have an attractive opportunity.
A revision doesn’t tell you what a company is actually worth, but rather what the large market players are about to do, which is a different thing that is still worth watching.
Buffett didn’t use price targets. He’s said in various forms over the years that Berkshire never bought with a target in mind, that what they look for is certainty about a business producing more cash over time.
I don’t treat any single investor’s approach as gospel, including Buffett’s. He was running a conglomerate, which we aren’t. But it’s a useful data point. One of arguably the best investors of the last several decades doesn’t feel the need for a number that half the market thinks it can’t function without.
How I Do It
My approach is deliberately built to sit outside the whole game. I don’t publish targets. I don’t publish buy-hold-sell lists. I don’t tell subscribers where a stock is going to be in twelve months, because I don’t know and neither does anyone else.
What I do instead has three steps:
The first is that I calculate a current fair value rather than forecast a future price. Fair value tells me what the business is worth today based on what it’s actually doing — revenue and earnings growth rate, margins, return on capital — not what an analyst hopes it will do in twelve months. That number updates as the fundamentals update, which keeps it grounded in the business rather than in a story about the business.
The second is that I only buy when two conditions align. The stock has to be trading below fair value with enough of a discount to earn my minimum required return, and it has to be near a technical support level so the entry price makes sense from a risk standpoint. Valuation tells me the trade is worth taking. Support tells me the timing is reasonable. Either condition on its own is not enough.
The third, and the piece that most differentiates the approach, is that the exit is dictated only by price. I use a trailing stop order on every position. If the price reverses meaningfully, the position closes. If it doesn’t, the position runs. I don’t sell because a stock hit somebody’s price target. I don’t sell because the thesis changed — competitors emerged, market share shifted, a bearish headline hit, a CEO left, a new threat surfaced. None of it. The market has already priced whatever news exists into the price, so watching the price is the honest way to know when the run is over. Everything else is noise.
This approach means I don’t need to know how high a stock will go. All I need to know is that a quality business is worth more than the market is charging for it and that the market is starting to agree. From there, I let the price tell me when the position closes.
That’s a very different game than trying to figure out whether Broadcom is worth $215 or $650 twelve months from now. It’s a game I can actually win, and one I can run consistently without depending on anyone else’s number to make the decisions for me.
Bottom Line
The price target industry exists because analysts, institutions, and brokerages all have reasons to keep it running. Individual investors don’t share those reasons. Playing a game that was designed for other players — using targets as buy signals, as sell signals, as forecasts you can build a plan around — is how you end up losing money without ever really understanding why.
Price targets are one instance of a larger pattern worth watching for. A lot of what looks like advice was built to serve professionals who need cover for their decisions and clients who need to feel informed enough to keep paying fees. None of it was built for you.
The alternative isn’t complicated. Figure out what a business is worth. Buy it when the market is offering it for less. Let the price tell you when to leave.
No headlines required.
Cheers,
Andrew
What’s another Wall Street output you never quite understood or one you followed and got burned by? Drop it in the comments.
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