Is Palo Alto (PANW) Worth Investing Based on Wall Street’s Upbeat Views?

Investors often look to recommendations made by Wall Street analysts before making a decision to buy, sell or hold a stock. While media reports of rating changes by these analysts employed (or sell-side) by brokerage firms often affect a stock’s price, do they really matter?

Before we discuss the reliability of brokerage referrals and how to use them to your advantage, let’s see what these Wall Street heavyweights think about Palo Alto Networks (PANW).

Palo Alto currently has an average brokerage recommendation (ABR) of 1.54, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on actual recommendations (Buy, Hold, Sell, etc.) made of 48 brokerage firms. An ABR of 1.54 approximates between Strong Buy and Buy.

Of the 48 recommendations deriving the current ABR, 34 are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 70.8% and 4.2% of all recommendations.

Check the price target and stock forecast for Palo Alto here>>>

While ABR calls to buy Palo Alto, it may not be wise to make an investment decision based on this information alone. Several studies have shown that brokerage recommendations are limited or unsuccessful in guiding investors to select stocks with the best potential for price growth.

Are you wondering why? Brokerage firms’ vested interest in a stock they cover often results in a strong positive bias in their analysts’ valuation of it. Our research shows that for every “Strong Sell” recommendation, brokerage firms assign five “Strong Buy” recommendations.

In other words, their interests are not always aligned with retail investors, rarely indicating where a stock’s price might actually be headed. Therefore, the best use of this information might be to validate your own research or an indicator that has proven to be very successful in predicting the price movement of a stock.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, ranks stocks into five groups ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell) and is an effective indicator of stock. price performance in the near future. Therefore, using ABR to validate the Zacks Rank could be an effective way to make a profitable investment decision.

Despite the fact that Zacks Rank and ABR both appear on a scale of 1 to 5, they are two completely different measures.

ABR is calculated based on brokerage recommendations only and is usually shown in decimals (example: 1.28). Instead, the Zacks Rank is a quantitative model that allows investors to harness the power of revisions to earnings estimates. It is displayed in whole numbers — from 1 to 5.

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