Should You Invest in Alibaba (BABA) Based on Bullish Wall Street Views?

When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?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 Alibaba (BABA).Alibaba currently has an average brokerage recommendation (ABR) of 1.14, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 22 brokerage firms. An ABR of 1.14 approximates between Strong Buy and Buy.Of the 22 recommendations that derive the current ABR, 20 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 90.9% and 4.6% of all recommendations.Brokerage Recommendation Trends for BABACheck price target & stock forecast for Alibaba here>>>The ABR suggests buying Alibaba, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.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.Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.ABR Should Not Be Confused With Zacks RankAlthough both Zacks Rank and ABR are displayed in a range of 1--5, they are different measures altogether.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.Another key difference between the ABR and Zacks Rank is freshness. The ABR is not necessarily up-to-date when you look at it. But, since brokerage analysts keep revising their earnings estimates to account for a company's changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in indicating future price movements.Is BABA a Good Investment?Looking at the earnings estimate revisions for Alibaba, the Zacks Consensus Estimate for the current year has declined 16.6% over the past month to $8.58.Analysts' growing pessimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates lower, could be a legitimate reason for the stock to plunge 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 #5 (Strong Sell) for Alibaba. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>Therefore, it could be wise to take the Buy-equivalent ABR for Alibaba with a grain of salt.One Big Gain, Every Trading DayTo help you take full advantage of this market, you’re invited to access every stock recommendation in all our private portfolios - for just $1.Zacks private portfolio services that closed 256 double and triple-digit winners in 2024 alone. That’s about one big gain every day the market was open. Of course, not all our picks are winners, but members have seen recent gains as high as +627% +1,340%, and +1,708%.Imagine how much you could profit with a steady stream of real-time picks from all our services that cover a number of strategies to suit a variety of investing and trading styles.See Stocks Now >>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 Alibaba Group Holding Limited (BABA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks