Price Target
A price target is an analyst's projection of the price a stock will reach within a specified time frame, usually 12 months.
Analysts at brokerages and research firms set price targets by estimating a company's future earnings, cash flow or revenue and applying a valuation method, such as a price-to-earnings multiple or a discounted cash flow model. The target typically accompanies a rating such as buy, hold or sell.
Financial sites often show a consensus price target, the average or median of all analysts covering a stock, along with the highest and lowest targets. A wide gap between high and low targets signals disagreement and uncertainty.
Price targets change frequently as companies report results and conditions shift, and they are often revised after the stock has already moved. Studies have found that their accuracy is limited and that analysts as a group have tended to lean optimistic.
Example: a stock trades at $80 and the consensus 12-month price target is $96. That implies an expected upside of 20% (($96 - $80) / $80). Whether the stock actually reaches $96 depends on many factors no analyst can fully foresee.