I noticed that the price of some stocks (e.g. CA.PA) have gone down since the launch (in this case ~20 years ago, to -80% at almost linear rate).

But for some strange reason the analysts still strongly recommend to buy the stock.

Why is this ? It find it rather hard to believe that if a company has been going downhill for the last 20 years it is suddenly, coincidentally this year, going to recover..

  • 1
    Also worth noting CA.PA has had a relatively high dividend yield for many years so share price in a vacuum is somewhat misleading as a lot of its value in the last five years+ to shareholders have been cash payouts.
    – Philip
    Jan 7, 2020 at 13:40
  • @Philip - Indeed, a few seconds after reading your comment, I added the dividends. $15.72. It would take a bit to spreadsheet these numbers to show what an initial $1000 would be worth today, but, certainly not a -80%. Jan 7, 2020 at 14:11

2 Answers 2


Remember that the current price is representing the markets expectations for current and future performance; not taking any past information into account - hence the 20 years downturn is irrelevant.

Also the analyst’s buy-recommendation is based on the fact that they believe the company is going to perform better in the future than the market thinks. Again not taking historical performance into consideration.

It doesn’t matter how the company has performed until now, only thing that matters is how they are expected to perform going forward.

Sure if management is the same as before and they historically has made poor decisions that could affect current price - but hopefully shareholders would have taken care of that along the way.


Let's consider a scenario where a company has 100 shares out in the stock market.

Mr. Millionaire has purchased up 80 of these shares, and has made it clear that he does not predict that the price will go down. He's also vowed to buy any shares that are available this time next year, no matter the price-- but right now he's focusing on other matters.

A group of 20 other people had previously purchased stock in the company, but they're not particularly interested in it at this time. They elect to sell it all at the same time for whatever reason. Maybe they all needed short term cash, maybe they lost faith-- whatever the reason, 20% of the shares are introduced to the market at the exact same time.

The price of the stock takes a sharp drop as there's suddenly a huge influx of supply, and it doesn't appear that anyone is snapping up demand. However, there's strong evidence that this supply will be picked up by a trusted (affluent) individual in the future, and it doesn't appear that the company is hurting for funding. Further, there's a strong claim that someone will buy up shares in a year's time, possibly for higher than market value.

This is a massive oversimplification of the way things would work in the real world, but it's meant to serve as an example of how a company's stock prices might fall, but still be seen as a valuable investment. Obviously nothing is so sure, but if someone like, say, Warren Buffet gives a failing company his support, it's likely to see a lot of people buying it and perceiving it as a stronger stock. That may or may not result in the company as a whole doing better. As I'm sure you're aware, investors are human, and they're not always correct.

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