Shares of Edited by Medicine (EDIT) have gained 5.8% over the past four weeks to close the last trading session at $8.83, but there could still be a solid upside for the stock if short-term price targets Wall Street analysts are an indication of this. According to the price targets, the average estimate of $15.21 indicates an upside potential of 72.3%.
The average estimate includes 14 short-term price targets with a standard deviation of $9.31. While the lower estimate of $7 points to a 20.7% decline from the current price level, the most optimistic analyst expects the stock to jump 307.7% to reach $36. It is very important to note the standard deviation here, as it helps to understand the variability of the estimates. The smaller the standard deviation, the greater the agreement between analysts.
Although the consensus price target is a highly coveted metric among investors, it may not be wise at all to rely solely on this metric when making an investment decision. Indeed, the ability and impartiality of analysts to set price targets has long been questionable.
But, for EDIT, an impressive average price target is not the only indicator of upside potential. The strong consensus among analysts on the company’s ability to report better earnings than they earlier predicted reinforces this view. Although a positive trend in earnings estimate revisions is not a gauge of how much a stock might gain, it has proven powerful in predicting upside.
Price, Consensus and EPS Surprise
Here’s what you might not know about analyst price targets
According to researchers from several universities around the world, a price target is one of many pieces of information about a stock that misleads investors far more often than it guides them. In fact, empirical research shows that the price targets set by many analysts, regardless of the degree of agreement, rarely indicate where a stock’s price might actually be headed.
While Wall Street analysts have a deep understanding of a company’s fundamentals and how sensitive its business is to economic and industry issues, many of them tend to set price targets that are overly optimistic. You wonder why ?
They typically do this to generate interest in the stocks of companies with which their companies have existing business relationships or with which they are seeking to associate. In other words, trading incentives from companies covering a stock often result in inflated price targets set by analysts.
However, a tight grouping of price targets, which is represented by a low standard deviation, indicates that analysts have a high degree of agreement on the direction and magnitude of a stock’s price movement. Although this does not necessarily mean that the stock will reach the average price target, it could be a good starting point for further research aimed at identifying potential fundamental driving forces.
That said, while investors shouldn’t ignore price targets entirely, making an investment decision based solely on them could result in a disappointing return on investment. Thus, price targets should always be treated with a high degree of skepticism.
Here’s why there could be a lot of benefits in EDIT
There has been growing optimism among analysts lately about the company’s earnings outlook, as indicated by the strong agreement among them to revise EPS estimates upwards. And that could be a legitimate reason to expect the stock to rise. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Over the past 30 days, the Zacks consensus estimate for the current year has risen 10.8%, with three estimates rising from no negative revision.
Additionally, EDIT currently has a Zacks #2 (buy) rating, meaning it’s in the top 20% of more than 4,000 stocks we rank based on four factors related to earnings estimates. Given an impressive externally audited track record, this is a more conclusive indication of the stock’s upside potential in the near term. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
Therefore, while the consensus price target may not be a reliable indicator of what the EDIT might gain, the direction of price movement it implies seems to be a good guide.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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