Price targets are among the simplest of investing metrics, but lots can be learned from the way in which they are constructed – and from the outliers in the analyst community who create them.
Most simply put, a price target refers to an expected future price for an asset or security. In the stock market, and from the pens of analysts, this is typically expressed over a 12-month time horizon.
Let’s take the UK’s largest listed company as an example. Royal Dutch Shell’s (RDSB) ‘B’ shares trade at £18.45, compared with an average broker price target of £23.58. This so-called ‘upside’ – the premium to the current market price where analysts see Shell’s fair value, and which they expect it to reach in the next year – has narrowed in recent months, but it is still a considerable 28 per cent higher than the current price.