What does outperform mean?

Question

The stock analysts use the following terms for a stock:

1. Buy
2. Strong Buy
3. Overweight
4. Underweight
5. Outperform

What do the analysts mean when they use those terms for a stock?

Answer 1

I'm assuming "buy" is obvious. "Strong buy" can have different criteria depending on the firm, but it reflects more strength (potential return, probability of higher return, etc.) than just a "buy" rating.

Outperform means they think the stock will have a better rate of return that the overall market.

"Overweight" and "underweight" are used to describe how you should treat the stocks within a portfolio. Overweight stocks are expected to outperform the market (or some benchmark), so you should give them more weight in your portfolio allocation. Underweight is the opposite.

Note that these 5 terms are not mutually exclusive. A stock with a rating of "outperform" by one analyst could also be a "buy" or "overweight" by others, or even the same analyst in different contexts (e.g. they might use "buy" when targeting retail investors but "overweight" when targeting portfolio managers).