Business, Legal & Accounting Glossary
The consensus recommendation is an average of analyst ratings on a stock. Suppose five security analysts follow Acme stock; two say “buy”, one says “hold”; two say “sell”. To compute a consensus recommendation, each rating is assigned a value, e.g., a buy is a 5; a hold, 3; a sell, 1. The consensus recommendation is the average rating, weighted by a number of analysts: [(2 X 5)+(1 X 3)+(2 X1)]/5. Thus the consensus recommendation is a 3, or hold. Like any weighted average, the consensus recommendation has its pluses and minuses. The consensus recommendation does give you a quick idea of what Wall Street pros think of the stock. But the consensus recommendation can also conceal wide differences of opinion among analysts: in the example, note that the consensus recommendation (hold) was the rating of the fewest analysts. In addition, the methodology of a consensus recommendation is open to scrutiny. For example, it’s questionable whether the ratings of the best analysts should receive the same weight as those of analysts held in less esteem.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Consensus Recommendation are sourced/syndicated and enhanced from:
This glossary post was last updated: 4th February, 2020 | 33 Views.