Why do analysts use ratings?

Analysts and brokerage firms often use ratings when they issue stock recommendations to stock traders. Analysts arrive at stock ratings after they research companies’ public financial statements, communicate with executives and customers and interact with companies in other ways.

How do analysts rate stocks?

Stock ratings can range from simple “buy” and “sell” ratings to “equal weight” and “outperform” ratings. Here’s a quick overview of how analysts rate stocks. A “buy” rating indicates that an analyst is optimistic about a stock’s short-term or mid-term growth and recommends that traders purchase the stock.

What is a stock rating?

A stock rating is a simple heuristic given by analysts who review the firm's financial statements, listen to conference calls, chat with company executives and compare the stock to others in the industry or sector. Finally, an analyst uses all this information to produce a simple recommendation and price target.