To a fundamental investor, a company’s earnings are the most important driver of market value and stock prices. In projecting earnings these days, market participants don’t take sell side earnings estimates very seriously. Jeff Miller today describes why – in a typical scenario:
A big-time firm sets a price target for a stock. The stock rallies and hits the target. Then they move the target up by 20%. How helpful is that? Suppose it goes the other way. The stock sells off and the firm lowers the target while retaining a “buy” rating. How helpful is that?
For our recent Next Invest online conference, I had the chance to interview Leigh Drogen, the founder of startup Estimize, which takes a fresh approach to earnings estimates based on a much larger set of inputs: knowledgeable people on the buy side, both institutional and individual. Given the democratization of information (aided by Reg FD) and the demand for estimates on a large number of stocks, this makes all the sense in the world. When Estimize hits scale – and it seems they’re well on their way – it belongs on every finance portal stock page and will be watched closely by hedge funds.