Stock ratings are given by financial analysts to classify stocks as buy, sell, or hold based on factors such as price/earnings ratio and balance sheet. Ratings can fluctuate and affect a stock’s price.
A stock rating refers to a rating given to a stock. Ratings are provided by financial analysts. Each rating service has different classifications and grades used for stock ratings.
A stock is a share of a company, or an ownership interest in a public company. Each share is priced based on the number of shares issued, the value of the company, and the market‘s perception of the share’s value. Stocks fluctuate daily when the stock market is open, based on what a person is willing to pay, called the bid, and what a person is willing to sell, called the ask.
Investors buy shares in the hope that their price will rise. As a result, many investors research stocks before buying them. Part of this research may involve looking at stock ratings.
Stock ratings are issued by rating agencies and/or other financial analysts. Standard & Poor’s, for example, is one of those rating agencies that looks at a stock and assigns a rating to it. Each different group of analysts may have a slightly different rating system. Some ratings are published online, in sources like Yahoo Finance or The Street.
A common rating system involves an analyst labeling stocks as buy, sell, or hold. A Buy rating means that the analyst believes the stock is a good buy; A hold rating means that those who own the stock must hold it, and a sell rating means that those who own the stock must sell it. Some rating scales also include strong buys and strong sells as a rating category.
Stocks can also be rated based on their underperformance or overperformance. Underperforming means that the stock will not perform as well as the market expects. Excessive performance means that stocks are likely to do better than analysts or markets expect.
Stock analysts look at several factors when determining a stock rating. A stock rating is often based on the price/earnings ratio, which is a comparison of the cost of purchasing the shares versus the company’s expected earnings. Another matrix is also used to determine a stock rating, such as looking at the company’s assets and debts on its balance sheet.
When an analyst changes their rating for the better, it is considered an upgrade. Analysts can also downgrade the stock, which happens if they move their recommendation from a sell to a hold or a hold to a buy. A change in a stock’s rating can cause its price to go up or down.
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