Question
In: Finance
Why is it important to carefully analyze the individual analyst estimates within consensus estimates?
Why is it important to carefully analyze the individual analyst estimates within consensus estimates?
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Expert Solution
Consensus Estimate: It is combined estiamte of all the analysts who are covering any public company. Analyst gives revenues, earning and other financial figures for quarter and year, once all analyst provide these figures then there is one consensus estimates come from this observation. One can find these estimate in many financial website..
While analyzing the individual analyst estimates it is required to carefully guage against consensus estimates, because this tells that analyst is using the same statement and somehow same scenarios and assumptions to reaching these estimates. If it estiamtes comes outside the consensus estimate then one has to look carefully what differently done by the analyst and whether his/her observations are correct. Consensus estimates also lead to market efficiency. If company performance is within consensus estimates then market will not give any knee jerk reaction but if it misses the estimates then it will reflect in share price of that public company.
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