When it comes to dishing out the “buy” ratings, stockbrokers are not exactly reluctant.
Put another way, brokers are loath to apply a “sell” rating to shares of a company that might potentially be a future client.
So, take “buy” ratings with a pinch of salt, especially when it is the house broker making the recommendation.
That being said, there is no rule – even an unwritten rule – that says a broker has to go mad with its target price. Most analysts are inveterate number crunchers with spreadsheet-based models they use to apply a target price to a share (usually over a 12-month timeframe) and this can be an indication as to just how enthusiastic they truly are about a share.
To be sure, the maxim “garbage in, garbage out” applies and if an analyst’s underlying assumptions are wrong then no matter how finely tuned the spreadsheet model is, the target price is likely to be as much use as last week’s losing lottery ticket.
Nevertheless, Proactive thought it would be interesting to check out which stocks are trading at levels that are most out of whack with the consensus target price.
We restricted our search to those companies that are followed by at least three brokers so as to weed out the tiddlers that are only covered by their house broker and one other broker hoping to be that company’s next house broker. Even so, caution is advised; a lot of companies these days are paying research houses to produce investment analysis and it is possible that some of these “research house for hire” companies’ target prices have been included in the data.
Below is the list of 20 stocks on the London Stock Exchange that are trading at the largest discount to the consensus target price.
Rank
Company name
Number of brokers covering the stock
Consensus target price
Last night’s closing price
Upside to target price
1.
Chaarat Gold Holdings Ltd (AIM:CGH, FRA:9IS)
3
57p
20.4p
179%
2.
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF, FRA:S8F)
5
62p
26.5p
134%
3.
Ceres Power Holdings PLC (LSE:CWR)
8
1,811p
932p
94%
4.
Puretech Health PLC
3
660p
343p
92%
5.
3
37p
19.75p
87%
6.
Seeing Machines Ltd (AIM:SEE, OTC:SEEMF, FRA:M2Z)
3
15p
8.25p
82%
7.
Georgia Capital PLC
3
1,146p
636p
80%
8.
3
211p
130p
62%
9.
3
244p
154.6p
58%
10.
3
98p
63.8p
54%
11.
SEPLAT Petroleum Development Co PLC
4
154p
101p
52%
12.
Wentworth Resources PLC (AIM:WEN)
3
35p
23p
52%
13.
Anexo Resources PLC
4
219p
144p
52%
14.
Rank Group (LSE:RNK) (The) PLC
3
242p
159.2p
52%
15.
3
410p
282p
45%
16.
TinyBuild Inc
4
310p
215p
44%
17.
3
740p
514p
44%
18.
Secure Trust Bank PLC (LSE:STB)
4
1,740p
1,210p
44%
19.
3
783p
546p
43%
20.
French Kier PLC
3
177p
123.8p
43%