Recurrence Pharmaceuticals (RXRX) closed the last trading session at $8.59, gaining 20% over the past four weeks, but there could be plenty of upside in the stock if near-term price targets set by analysts of Wall Street are an indication. The average price target of $13.20 indicates an upside potential of 53.7%.
The average comprises five short-term price targets ranging from a low of $8 to a high of $20, with a standard deviation of $4.97. While the lower estimate indicates a decline of 6.9% from the current price level, the more optimistic estimate indicates an increase of 132.8%. More than the range, the standard deviation should be noted here, as it helps to understand the variability of the estimates. The smaller the standard deviation, the greater the agreement between analysts.
While the consensus price target is highly sought after by investors, the ability and fairness of analysts to set price targets has long been questionable. And investors making investment decisions solely based on this tool would undoubtedly be doing themselves a disservice.
But, for RXRX, an impressive average price target is not the only indicator of potential upside. 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 RXRX
Analysts’ growing optimism about the company’s earnings outlook, as indicated by the strong agreement among them to revise EPS estimates upwards, could be a legitimate reason to expect the stock to rise. Indeed, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
The Zacks consensus estimate for the current year rose 2.4% over the past month as one estimate rose relative to no negative revision.
Additionally, RXRX currently has a Zacks #2 (buy) rating, meaning it is in the top 20% of more than 4,000 stocks that 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 RXRX’s potential upside, 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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Recursion Pharmaceuticals, Inc. (RXRX): Free Stock Analysis Report
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