Advertisement
Canada markets closed
  • S&P/TSX

    22,320.87
    +120.08 (+0.54%)
     
  • S&P 500

    5,304.72
    +36.88 (+0.70%)
     
  • DOW

    39,069.59
    +4.33 (+0.01%)
     
  • CAD/USD

    0.7319
    +0.0035 (+0.48%)
     
  • CRUDE OIL

    77.80
    +0.93 (+1.21%)
     
  • Bitcoin CAD

    94,307.75
    +3,117.22 (+3.42%)
     
  • CMC Crypto 200

    1,440.81
    -27.29 (-1.86%)
     
  • GOLD FUTURES

    2,335.20
    -2.00 (-0.09%)
     
  • RUSSELL 2000

    2,069.67
    +21.26 (+1.04%)
     
  • 10-Yr Bond

    4.4670
    -0.0080 (-0.18%)
     
  • NASDAQ

    16,920.79
    +184.76 (+1.10%)
     
  • VOLATILITY

    11.93
    -0.84 (-6.58%)
     
  • FTSE

    8,317.59
    -21.64 (-0.26%)
     
  • NIKKEI 225

    38,646.11
    -457.11 (-1.17%)
     
  • CAD/EUR

    0.6744
    +0.0011 (+0.16%)
     

Is Construction Partners (ROAD) a Buy as Wall Street Analysts Look Optimistic?

The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Construction Partners (ROAD).

Construction Partners currently has an average brokerage recommendation (ABR) of 2.00, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by six brokerage firms. An ABR of 2.00 indicates Buy.

Of the six recommendations that derive the current ABR, three are Strong Buy, representing 50% of all recommendations.

ADVERTISEMENT



Check price target & stock forecast for Construction Partners here>>>

While the ABR calls for buying Construction Partners, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.

In other words, their interests aren't always aligned with retail investors, rarely indicating where the price of a stock could actually be heading. Therefore, the best use of this information could be validating your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

With an impressive externally audited track record, our proprietary stock rating tool, the Zacks Rank, which classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stock's near -term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Is ROAD Worth Investing In?

In terms of earnings estimate revisions for Construction Partners, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $1.35.

Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Construction Partners. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Construction Partners.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Construction Partners, Inc. (ROAD) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research