If you are in the field of stock trading, you might have heard about the term ‘stock ratings’ while going through financial journals and investment posts. This term is usually accompanied by stock recommendations and investment advice regard stock investments.
Well, if you are interested in knowing more about this term, you can get to everything about it right here. The article will explain different types of stock ratings such as buy, sell, outperform, and under perform. Also, understand how these ratings can help stock traders in making sound investment decisions.
What are Stock Ratings?
A stock rating refers to the measurement of stock performance in a particular time period. These stock ratings are of immense value to analysts and brokerage firms that use them to make stock recommendations to stock traders.
Analysts research financial statements of different businesses, consult with management and customers or listen to the conference calls of those companies to arrive. The top 10 stock brokers in India use stock ratings that mention a target price which helps them understand a stock’s basic value when compared to its market value.
Research Analysts give their recommendations on the stock by analyzing financial statements, listening to the company’s conference calls quarterly, and reviewing the company’s management on their future prospects.
These analysts can even consult directly with the management and its client to gain a precise idea of how the company is performing as compared to its past performance and to its peers.
Types of Stock Ratings
There are primarily five categories of stock ratings – buy, sell, hold, underperform and outperform ratings.
- Buy Rating
A buy rating simply refers to the buying of a particular stock as analysts are hopeful of an appreciation in the stock value in near future.
- Sell Rating
This is just the opposite of a buy rating. In sell rating, a recommendation is made for the selling of a specific stock as analysis is expecting the price of the stock to take a slump.
- Hold Rating
This is when an analyst expects a specific stock to perform in a consistent way similar to other stocks of the same sector.
- Underperform
An underperform rating is a sign that the stock may perform very badly below the market average or the benchmark index. In this case, analysts ask the traders to stay away from the stock.
- Outperform
An outperform rating is allotted to a stock when it is expected to perform better than the average market or benchmark index.
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How stock ratings are used for investment decisions?
Although these stock ratings may have an impact on the specific stock that may trigger an acute shift in the stock price on either side, investors may have their own sentiments on both stock rating and also the price target.
- A stock rating is a calculation of a stock performance at a particular time period
- Analysts research financial records of different companies, consult with the management and customers or pay attention to the conference calls of those businesses to arrive at appropriate stock ratings.
From the above pointers, it can easily be understood that these stock ratings play a vital role in helping traders in regard to making an investment decision. For example, a sell rating sends recommendations to traders that they can choose to sell a specific stock which means that stock analysts expect the stock price to take a dep below its present level.
Similarly, when an analyst assigns a hold rating to a stock then they expect it to perform the same with the market or as similar stocks of the same sector. This rating indicates the stockbrokers or investors not to buy or sell the stock and hold the stock for some more time.
A hold rating is allotted to a stock when there is indecision in a firm for example in regard to new products/services. The best stock broker in India always pays close attention to this aspect of stock analysis.
One needs to keep in mind that there are various technical indicators that can be used to define stock ratings. The most important distinction is that fundamental analysis is supposed to find long-term investment opportunities, while technical analysis usually focuses on short-term price changes. They typically are harbingers of fundamental analysis and believe that, by focusing on great businesses trading at fair prices, investors can beat the market over time.