Reliability of Investment Recommendations
Reliability of Investment Recommendations

Author(s): Pavla Říhová, Milan Svoboda
Subject(s): Business Economy / Management, Financial Markets, Accounting - Business Administration
Published by: Masarykova univerzita nakladatelství
Keywords: intrinsic value; investment recommendations; market price; share; target price;
Summary/Abstract: This article deals with the reliability of investment recommendations for selected companies traded on the Prague Stock Exchange. Stock analysts issue investment recommendations and set the so-called target share prices. The target price of a share is an intrinsic value of the share that has been determined by fundamental analysis. The market price of the share should reach exactly this value within one year. The investor should therefore buy (sell) such shares where there is a sufficiently large difference between the intrinsic value and the current market price in favour of the intrinsic value (in favour of the market price). The article aims to evaluate the overall reliability or, more precisely, the accuracy of investment recommendations. The target share price to be reached within one year has been compared with the development of its market price for every published investment recommendation. If the market price of the share has reached its target price within one year, the investment recommendation can be considered as a successful one and vice versa. The investment recommendations were analysed for the six-year period, from the beginning of 2012 until the end of 2017. The data were taken from the database of Patria a.s. The analysis has shown that investing based on investment recommendations does not yield good results.

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