Is an analyst's “price target” assumed to be for 12 months out?
I wouldn't put too much stock in the guidance generically... it's more a measure of confidence in the company. When you listen to the earnings calls and start following a particular analyst, you'll understand where they come from when they kick out a number. "If the time horizon is not indicated, this is just a ""fair price"". The price of the stock, which corresponds with the fair value of the whole company. The value, which the whole business is worth, taking into consideration its net income, current bonds yield, level of risk of the business, perspective of the business etc.. The analyst thinks the price will sooner or later hit the target level (if the price is high, investors will exit stocks, if the price is cheap, investors will jump in), but no one knows, how much time will it take." The time horizon applicable to the price target is always specified by the broker or bank which published the research report.  You will find this information in the disclaimer, which is present on every research report. Usually it is 12 months, but some firms give 6 months price targets. However, you should never rely on the price target alone and always combine it with the following details (to name a few): Are the analyst's estimate above or below consensus estimates (or company guidance), did the analyst rise or lower its estimates. What is the rating on the stock (Buy, Sell, Hold...), when did he change his rating or price target.  Does the firm do business with the company? (which may influence a bullish tone and optimistic price target). I don't think you can always assume a 12-month time horizon.  Sometimes, the analyst's comments might provide some color on what kind of a time horizon they're thinking of, but it might be quite vague. Most commonly, unless you read 'fair value target price,' an analyst's target price is a 12-month target price. Typically, there is a firm wide policy determining which time horizon to use. No analyst would provide an open ended target price, it doesn't make any sense (you discount cash flows to a certain period, adjust for inflation, etc). So there is always a time horizon. Analysts normally (oxymoron here) gauge their targets on where the stock is currently and more importantly where it has been. Except for in the case of say a Dryships where it was a hundred dollar stock and is now in the single digits, it is safe to assume that Apple for instance was well over $ 700 and is now at $500, and that a price guidance of $ 580 is not that remarkable and a not so difficult level to strike. Kind of like a meteorologist; fifty percent chance of rain. Analysts and weathermen.Hard to lose your job when your never really wrong. Mr Zip, Over and outta here
"Systemic and well know patterns in sales are priced in to the security.  Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range.  These expected earnings are priced in before the earnings are actually booked.  If a company meets these expectations the stock will likely stay relatively flat.  If the company misses this expectation, the stock, generally, will get slammed.   This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric.  The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been ""priced in.""  If the well known expected event doesn't occur, maybe it's a new normal." The indication is based on the average Buy-Hold-Sell rating of a group of fundamental analysts. The individual analysts provide a Buy, Hold or Sell recommendation based on where the current price of the stock is compared to the perceived value of the stock by the analyst.  Note that this perceived value is based on many assumptions by the analyst and their biased view of the stock. That is why different fundamental analysts provide different values and different recommendations on the same stock. So basically if the stock's price is below the analyst's perceived value it will be given a Buy recommendation, if the price is equal with the perceived value it will be given a Hold recommendation and if the price is more than the perceived value it will be given a Sell recommendation. As the others have said this information IMHO is useless. Graphs are nothing but a representation of data. Every time a trade is made, a point is plotted on the graph. After points are plotted, they are joined in order to represent the data in a graphical format.  Think about it this way.  1.) Walmart shuts at 12 AM. 2.)Walmart is selling almonds at $10 a pound.  3.) Walmart says that the price is going to reduce to $9 effective tomorrow. 4.) You are inside the store buying almonds at 11:59 PM.  5.) Till you make your way up to the counter, it is already 12:01 AM, so the store is technically shut. 6.) However, they allow you to purchase the almonds since you were already in there.  7.) You purchase the almonds at $9 since the day has changed. 8.) So you have made a trade and it will reflect as a point on the graph. 9.) When those points are joined, the curves on the graph will be created. 10.) The data source is Walmart's system as it reflects the sale to you. ( In your case the NYSE exchange records this trade made). Buying a stock is just like buying almonds. There has to be a buyer. There has to be a seller. There has to be a price to which both agree. As soon as all these conditions are met, and the trade is made, it is reflected on the graph. The only difference between the graphs from 9 AM-4 PM, and 4 PM-9 AM is the time. The trade has happened regardless and NYSE(Or any other stock exchange) has recorded it! The graph is just made from that data. Cheers. "&gt; Forecasting prices to the level of accuracy they purport is a fool's errand. Sell side analysts are there to get you to buy something, not to make you money. &gt; If they truly believed their analysis was significantly better than anyone else's in the market, they would trade on their own analysis. &gt; No one ever got rich by following analyst recommendations. &gt; Don't believe me? Track the buy/sell recommendations in a spreadsheet for 50+ stocks. I would be shocked if you significantly outperformed the market.  Only partly right.  Sell side price targets are bullshit.  Literally everyone knows this.  The reason there is value isn't because of their predictions but because of everything else.  [Here's another professional's opinion as well:](http://www.reddit.com/r/investing/comments/27dokr/aapl_proves_wall_street_is_nuts/chzy78s?context=3)  &gt; If we're talking about sell-side institutional analysts, then this is not necessarily correct. It's just that the retail sector seems to only give a shit about the forecasts/conclusions (""ohhh DB says buy xyz with target of xx.xx!""). This goes to show how ignorant retail is when it comes to what the actual value of sell-side research reports are.  &gt; Sell-side research isn't valuable for buy-side because of the recommendations.. those are in fact the most ignored aspect of published research. It's valuable for buy-side because of the content. Sell-side analysts do the bullshit grind in investigating underlying information (such as visits to operational endeavors and clawing together bulk data). Buy side uses this underlying accrued data to formulate their own conclusions." I have heard of this, but then the broker is short the shares if they weren't selling them out of inventory, so they still want to accumulate the shares or a hedge before EOD most likely - In that case it may not be the client themselves, but that demand is hitting the market at some point if there isn't sufficient selling volume.    Whether or not the broker ends up getting all of them below VWAP is a cost of marketing for them, how they expect to reliably get real size below vwap is my question. To be fair, the analyst is talking about the book value of the firm. Basically, the value of all the stuff it owns now. There are plenty of companies with negative book value that can justify a positive share price. Ford, for instance, had negative book value but positive future earnings. No, and using a 37 year old formula in finance that is as simple as: should make it obvious technical analysis is more of a game for retail traders than investment advice. When it comes to currencies, there are a myriad of macroeconomic occurrences that do not follow a predictable timescale. Using indicators like RSI on any time frame will not magically illuminate broad human psychology and give you an edge. It is theoretically possible for a single public stock's price to be driven by a range of technical traders who all buy at RSI 30 and sell at RSI 70, after becoming a favorite stock on social media, but it is infinitely more likely for all market participants to have completely different goals. "As I understand it, Implied Volatility represents the expected gyrations of an options contract over it's lifetime.  No, it represents that expected movement of the underlying stock, not the option itself.  Yes, the value of the option will move roughly in the same direction the value of the stock, but that's not what IV is measuring. I even tried staring at the math behind the Options pricing model to see if that could make more sense for me but that didn't help. That formula is correct for the Black-Scholes model - and it is not possible (or at least no one has done it yet) to solve for s to create a closed-form equation for implied volatility.  What most systems do to calculate implied volatility is plug in different values of s (standard deviation) until a value for the option is found that matches the quoted market value ($12.00 in this example).  That's why it's called ""implied"" volatility - the value is implied from market prices, not calculated directly. The thing that sticks out to me is that the ""last"" quoted price of $12 is outside of the bid-ask spread of $9.20 to $10.40, which tells me that the underlying stock has dropped significantly since the last actual trade.   If the Implied Vol is calculated based on the last executed trade, then whatever algorithm they used to solve for a volatility that match that price couldn't find a solution, which then choose to show as a 0% volatility.   In reality, the volatility is somewhere between the two neighbors of 56% and 97%, but with such a short time until expiry, there should be very little chance of the stock dropping below $27.50, and the value of the option should be somewhere around its intrinsic value (strike - stock price) of $9.18." I don't believe most do it on purpose. Its a function of two things.  1) Markets are relatively efficient, so generating profits off of publicly available information is rare.  2) Analysts cannot ethically nor legally make  recommendation based on material non-public information.  That leaves them with using public information and building out s model to estimate earnings and therefore share price as best as possible. The problem is that estimating earnings is notoriously difficult. Every model is subject to garbage-in-garbage-out. All analysts start with some of the same basic assumptions and then tweak them based on their best guess. Take enough analysts and you've now replicated roughly what all investors are doing in the marketplace, meaning as a whole analysts won't be more accurate than the market.  The only way to generate above market returns is for you to consistently pick the analyst with the right recommendation. If only it were so easy...  Furthermore, analysts tend to make similar recommendations due to biases. Their initial model may have said 'buy' for GE, but they realize no other analysts have a buy rating on the stock. They're more likely to go back and revise their guesses to something more inline with their peers - its less risky to be with the crowd!  TL;DR  Security selection is hard and outperformance without MNP is unlikely over the long term.  I am no longer in the industry. After 2.5yrs as an analyst and going through the CFA curriculum I've learned that there are VERY few opportunities for out performance, especially so on a risk adjusted basis. To get the probability of hitting a target price you need a little more math and an assumption about the expected return of your stock.  First let's examine the parts of this expression. IV is the implied volatility of the option.  That means it's the volatility of the underlying that is associated with the observed option price.  As a practical matter, volatility is the standard deviation of returns, expressed in annualized terms.  So if the monthly standard deviation is Y, then Y*SQRT(12) is the volatility. From the above you can see that IV*SQRT(DaysToExpire/356) de-annualizes the volatility to get back to a standard deviation.  So you get an estimate of the expected standard deviation of the return between now and expiration. If you multiply this by the stock price, then you get what you have called X, which is the standard deviation of the dollars gained or lost between now and expiration.  Denote the price change by A (so that the standard deviation of A is X). Note that we seek the expression for the probability of hitting a target level, Q, so mathematically we want 1 - Pr( A < Q - StockPrice)  We do 1 minus the probability of being below this threshold because cumulative distribution functions always find the probability of being BELOW a threshold, not above. If you are using excel and assuming a mean of zero for returns, the probability of hitting or exceeding Q at expiration, then, is That's your answer for the probability of exceeding Q. Accuracy is in the eye of the beholder.  You'd have to specify a criterion by which to judge it to know the answer.  I'm sure more sophisticated methods exist that are more unbiased and have less error, but I think it's a fine first approximation. "@jlowin's answer has a very good discussion of the types of PE ratio so I will just answer a very specific question from within your question: And who makes these estimates? Is it the market commentators or the company saying ""we'd expected to make this much""? Future earnings estimates are made by professional analysts and analytical teams in the market based on a number of factors. If these analysts are within an investment company the investment company will use a frequently updated value of this estimate as the basis for their PE ratio. Some of these numbers for large or liquid firms may essentially be generated every time they want to look at the PE ratio, possibly many times a day. In my experience they take little notice of what the company says they expect to make as those are numbers that the board wants the market to see. Instead analysts use a mixture of economic data and forecasting, surveys of sentiment towards the company and its industry, and various related current events to build up an ongoing model of the company's finances. How sophisticated the model is is dependent upon how big the analytics team is and how much time resource they can devote to the company. For bigger firms with good investor relations teams and high liquidity or small, fast growing firms this can be a huge undertaking as they can see large rewards in putting the extra work in. The  At least one analytics team at a large investment bank that I worked closely with even went as far as sending analysts out onto the streets some days to ""get a feeling for"" some companies' and industries' growth potential. Each analytics team or analyst only seems to make public its estimates a few times a year in spite of their being calculated internally as an ongoing process. The reason why they do this is simple; this analysis is worth a lot to their trading teams, asset managers and paying clients than the PR of releasing the data. Although these projections are ""good at time of release""  their value diminishes as time goes on, particularly if the firm launches new initiatives etc.. This is why weighting analyst forecasts based on this time variable makes for a better average. Most private individual investors use an average or time weighted average (on time since release) of these analyst estimates as the basis for their forward PE." Forecasting prices to the level of accuracy they purport is a fool's errand. Sell side analysts are there to get you to buy something, not to make you money.  If they truly believed their analysis was significantly better than anyone else's in the market, they would trade on their own analysis.  No one ever got rich by following analyst recommendations.  Don't believe me? Track the buy/sell recommendations in a spreadsheet for 50+ stocks. I would be shocked if you significantly outperformed the market. "&gt;Your line of reasoning is why you should have a timeline on a prediction. It's been, what, 12 years now of near constant assertions that huge inflation is just right around the corner. How long should we wait for it?  Just long enough so that when it happens, you can claim that ""Shit! No one could have predicted THAT.""  &gt;to keep the inflation, which there is absolutely no sign of whatsoever  Wow.  The blindness.  It HAS to be willful." The market can stay irrational longer than you can remain solvent -John Maynard Keynes The stocks could stagnate and trade in a thin range, or decline in value. You assume that your stocks will offer you ANY positive return for every month over 24 months. Just one month of negative returns puts you underwater. Thats whats wrong with it.  Even if you identified any stock that has been up every month for a consecutive 24 months in the past, there is nothing that says it will be so in the future, and a broad market selloff will effect both indexes as well as individual stocks.  Literally any adverse macroeconomic event in the next two years will put you underwater on your loan, no matter how much research you do on individual stocks. Paytrust seems to be the only game in town.  We've changed banks several times over the last 15 years and I can tell you that using a bank's bill pay service locks you in, big time.  I loved paytrust because I could make one change if we changed banks.  If you're using a bank directly for your bills, the ides of recreating your payee list is daunting.