Why stocks don't soar on earnings estimates

May 16, 2008

A few months ago I bought a stock that seemed very promising; several analysts had posted high earnings estimates for it. But the stock's price hasn't risen much since then. Why is that?

A few months ago I bought a stock that seemed very promising; several analysts had posted high earnings estimates for it. But the stock's price hasn't risen much since then. Why is that?

Earnings forecasts that analysts agree upon are typically reflected in the price of a stock almost instantaneously, so your purchase price probably included any increase attributable to the estimates you saw. An unusually positive forecast by one analyst, on the other hand, can indicate an opportunity for an additional price increase if the forecast eventually proves to be true. But before investing on that basis, make sure you find out what the analyst's assumptions were and do some additional research to evaluate whether they're valid.