New thread for discussing target prices. Target prices should play a very minor role in investment decisions, and many company threads get flooded with target price discussions. We all only have 24 hours a day, so it’s better to move target price discussions here and keep company-specific discussions in their respective company threads.
This is a good topic for a thread. Here, we can wonder about all target prices and not just Inderes’ recommendations, as in the previous thread.
I wonder, don’t series of disappointments cause any reaction to target prices and recommendations? Doesn’t failing to meet forecasts cause any lack of trust going forward? There are probably other examples, but in the cases of Tokmanni, Kamux, and Harvia, for example, many analysis firms have recommended buying after almost every negative announcement and poor earnings report, because the stock is cheap for reasons x and y. The expected return only improves with every bad news and price drop. The end result is that the target price is adjusted downwards by tens of percent at least quarterly, and then buying is recommended again.
I would greatly appreciate an analyst who takes a strong stance, sets revenue forecasts (and operating profit) at a level the company deserves, and recommends reducing if necessary! Now, some kind of bottom is already visible here, and it’s hard to recommend reducing Tokmanni when there were signs of improvement. Still, during this downturn, the trend has been puzzling that the recommendation has consistently been “Add” or “Buy,” but the outcome has been nothing but a sharp drop in both the stock price and target price. Hats off to those who dare to recommend reducing or even selling. 
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The target price is an analyst’s estimate of the stock price 12 months from now. Has anyone tracked their realization over a longer period, either by analyst or by company?
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There’s a pretty important terminological difference here - “from now” or “within”? Of course, they can also mean the same thing. In practice, the target price has held true if the share price rises to or above that level immediately after the target price is published, even if it doesn’t stay there for long. When the Inderes effect was at its strongest, this was experienced with Harvia, for example. I myself remember stating here a few times that Petri Kajaani practically determined Harvia’s new price with his target price when the stock rose to the target price level immediately after the analysis was published.
It has often been suggested on the forum to switch to a method where some kind of fair value is given, along with bull and bear case prices.
Fair value should be the current reasonable valuation level of the stock. The bull/bear range could then be an estimate for a year ahead with different scenarios.
I haven’t read much Swedish analysis, but that might be the same way they value stocks there. (Perhaps it stuck in my mind from the Smart Eye thread.) I honestly don’t remember now, but if it’s a direct copy, then the idea has been simmering in my head from there. However, I would consider such a method quite suitable, because it doesn’t commit to one fixed price estimate but gives a range, and the reader of the analysis can try to think about scenarios within that range.
I also recall that Inderes for some reason was not willing to switch to this valuation method. There was probably a good reason for it, but of course, I don’t remember it.
Despite everything, I would consider giving some kind of bull/bear range to be the best way to avoid future fuss arising from giving “too high” target prices, because it would also give responsibility to the reader of the analysis. It also requires analysts to have nerves of steel to try to find an exact target price a year ahead. Why couldn’t target prices be at least somewhat “looser”?
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So, Nordea believes that a stock with 44% upside potential should not be bought. In my opinion, that is an utterly absurd recommendation.
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