I want to have a glimpse of what stock analysts do with financial data and how they analyze it to come up with a recommendations like: Buy, Lighten, Sell, Sell into Strength, Range Trade for a certain company. I just want to have better understanding.

Currently: I buy my own stocks from stock analysts recommendations and short-list it by filtering the recommendation based on government policies, plans and speculations. I have limited knowledge with financial analysis as of now (that's why im trying to go in depth). Thanks!

  • 3
    The more limited your financial knowledge, the less you should be investing in particular stocks. There is a lot of risk there; make sure you know what you're getting into. Sep 20, 2016 at 12:52
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    They look what shares their friends own and recommend them. Then they look which shares their stepmom owns and tell you to short those. If they were able to predict future stock prices, they wouldn't need to sell stock recommendations for a living.
    – Christian
    Sep 20, 2016 at 13:12
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    Imagine a world with 1024 analysts. Each period they convince themselves they're using a proven method and guess a share or the market goes up or down. After 8-9 periods, we'd expect a small number to have pretty nice historical track records. We don't see the failures who guessed wrong. Follow one of these at your risk.
    – user662852
    Sep 20, 2016 at 13:19
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    They make many assumptions, often based on their biased view of the stock and the markets. That is why two analysts can have completely opposing recommendations on the same stock at the same time.
    – Victor
    Sep 20, 2016 at 13:34
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    @cst1992 - that is what the marketing division is for. Everyone is going to get some of their recommendations right, but it's funny how they never advertise the ones they got wrong and lost alot of money for their followers.
    – Victor
    Sep 20, 2016 at 13:38

2 Answers 2


The short answer: it depends.

The long answer..

Off the top of my head, there are quite a number of factors that an analyst may look at when analyzing a stock, to come up with a recommendation. Some example factors to look at include:

  • Trading volume
  • Moving average
  • Fundamental analysis
  • Price momentum
  • Credit worthiness
  • Strength of balance sheet
  • Future outlook for the sector
  • Product pipeline
  • Dividend growth
  • Employee turnover rate
  • Sales per Square Meter of store space
  • Asset turnover
  • Age of capital assets
  • Supply pipeline (e.g. does the company buy supplies (inputs) for its products from only ethical sources?)
  • ...etc.

The list goes on. Quite literally, any and all factors are fair game for a recommendation. So, the question isn't really what analysts do with financial data, it is what do analysts do with financial data that meets your investment needs?

As an example, if you have two analysts, one who is focused on growth stocks, and one who is focused on dividend growth, they may have completely different views on a company. If both analysts were to analyze Apple (AAPL) 5 years ago, the dividend analyst would likely say SELL or at the most HOLD, because back then Apple did not have a dividend. However, an analyst focused on growth would likely have said BUY, because Apple appeared to be on a clear upward trend in terms of growth.

Likewise, if you have analysts who are focused on shorting stocks, and ones who are focused on deep value investing, the sell analyst may be selling SELL because they are confident the stock will go down in price, so you can make money on the short position. Conversely, the deep value investor may be saying BUY, because they believe that based on the companies strong balance sheet, and recent shake-ups in management the stock will eventually turn around. Two completely different views for the same company: the analyst focused on shorting is looking to make money by capitalizing on falling share price, while the analyst focused on deep value is looking for unloved companies in a tailspin whom s/he believe will turn around, the thesis being that if you dollar-cost-average as the price drops, when it corrects, you'll reap the rewards.

That all said, to answer the question about what analysts look for:

  • A growth analyst may be focused on things such as future earnings growth, future revenue growth, mixed with decreasing operational costs, and product pipeline: earnings growth roughly translates into higher share prices, and if you are chasing growth, you want companies whose bottom lines are going up on a consistent basis.
  • An analyst focused on dividends may be focused on the dividend payout ratio, dividend growth history, and earnings growth. They wouldn't necessarily care about capital appreciation vis-a-vis a rising stock price, since they are concerned primarily with the income stream a company produces, the and the probability that the dividend will increase (or at least be maintained).
  • An analyst in the health care sector may be interested in the product pipeline, the company's history of R&D, the company's history of acquisitions (e.g. buying new products vs. building new products), or the probability of that company being bought out by a larger competitor (e.g. A firm in Stage III of clinical, with a relatively small valuation would be a great takeover target for a larger pharmaceutical).

So really, you should be looking for analysts who align with your investment style, and use those recommendations as a starting point for your own purchases. Personally, I am a dividend investor, so I have passed many BUY recommendations from analysts and my former broker because those were based on growth stories. That does not mean that the analysts, my former broker, or myself, are wrong. But we were all incorrect given the context of how I invest, and what they recommend.


Let me start with a somewhat sarcastic statement: There are probably as many things done to analyze a stock as there are people doing the analysis!

That said, at a general level an analyst researches the historical performance of the company at a fairly detailed level (operations within divisions of the company, product development cycles within divisions, expenses vs income trends for each division and product, marketing costs, customer acquisition costs, etc); gathers information about what the company is doing now AND planning to do in the future -- often by a discussion with principles at the company; establishes a view on related macro-economic trends, sector and industry trends, demographic trends, etc.; and combines it all to forecast a change in revenues, margins, free cash flow, dividends, etc. over a period of time. They then apply statistics that relate those numbers to stock price in order to imply stock prices and price ranges over those same periods. Finally, depending on how those stock prices compare to the current stock price, they'll classify the stock as Buy, Sell, Hold, etc.

This sounds like alot of work. And it generally is if you get detailed about it, which is what professionals or significant money managers are doing. However, there are also lots of arm-chair analysts posting their output on any number of financial sites (Seeking Alpha, Motley Fool, etc.) if you'd like to really explore the range of detail some people consider as a "stock analysis". That sounds more negative than I intended it to be, so let me clarify that I think some of these write-ups are really quite good IMO.

  • Seeking Alpha has a lot of useful general information but you should take many of the opinions there with a grain of salt and beware of some others. Anyone can write and submit an article for publication there (and payment for it) and many of the authors have no clue. Their primary agenda is to drive readers toward $ubscription$. In and of itself, a profit motive isn't a problem but SA will defend their authors, even when abjectly wrong, to the point of censuring readers who correct author errors. Nov 30, 2020 at 0:12
  • In addition, there are some dishonest authors who offer premium subscription advice. One who goes by the handle of Pendragon recently touted PEI-C having run up 300% from its March low of about $2 while failing to acknowledge that he recommended buying it at $22 before the collapse. Nov 30, 2020 at 0:12

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