Anavex Life Sciences stock closed (NASDAQ: AVXL) at $10.17 in last week’s trading session, gaining 4.7% over the past four weeks. However, short-term price targets set by Wall Street analysts suggest there are plenty of upsides left. Based on the mean price target of $34.40, there is a potential upside of 238.3%.
Five short-term price targets range from $16 to $42, with a standard deviation of $10.60. The lowest estimate implies an increase of 57.3%, while the most optimistic implies an increase of 313%. It is essential to note the standard deviation here, as it helps understand the variability of the estimates. Minor standard deviations mean greater agreement among analysts.
Although investors seek after the consensus price target, analysts’ ability and unbiasedness to set price targets have long been questionable. Therefore, it is arguably unwise for investors to make investment decisions solely based on this tool.
However, Anavex Life Sciences Corp. (NASDAQ: AVXL) has an impressive consensus price target, which is not the only factor indicating potential upside. According to analysts, the company will report better earnings than it had estimated earlier. Although a positive trend in earnings estimate revisions cannot predict how much Anavex Life Sciences stock will rise, it has proven helpful in predicting an upward trend.
The Truth About Analysts’ Price Targets
Researchers worldwide claim that price targets mislead investors more often than guide them. According to research, price targets set by several analysts, regardless of how much agreement there may be, seldom accurately predict a stock’s future price.
Despite Wall Street analysts’ deep understanding of a company’s fundamentals and its sensitivity to economic and industry factors, many set overly optimistic price targets. Why?
Because in most cases, they do that to raise the stock interest of companies with which they are already associated or are seeking to associate. As a result, analysts often set inflated price targets because of business incentives.
A low standard deviation means that analysts have a high degree of agreement about a stock’s price direction and magnitude. Although that doesn’t guarantee the stock will hit the average price target, it could provide an excellent start for further research to identify the fundamental drivers.
However, investors should not rely solely on price targets to make investment decisions, which could lead to disappointing returns. It is, therefore, wise to treat price targets with healthy skepticism.
Here’s Why There Could be Plenty of Upside Left in Anavex Life Sciences Stock
Analysts’ growing optimism about Anavex Life Sciences Corp.’s (NASDAQ: AVXL) earnings prospects, as evidenced by their strong agreement to revise EPS estimates higher, could be a good reason to expect an upside in the stock. This is because empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
The Zacks Consensus Estimate has risen 29.3% in the past month with no negative revisions.
Anavex Life Sciences stock is also ranked #2 (Buy) by Zacks based on four factors related to earnings estimates, placing it in the top 20% of over 4,000 stocks we rank. The stock’s impressive externally-audited track record indicates near-term potential upside.
In other words, while the consensus price target may not be a reliable indicator of how much Anavex Life Sciences stock could gain, the direction of price movement does appear to be a great indication.
About Anavex Life Sciences Corp.
Anavex Life Sciences Corp. (NASDAQ: AVXL) develops differentiated therapies for the treatment of neurodegenerative and neurodevelopmental disorders such as Alzheimer’s, Parkinson’s, Rett syndrome, pain, and various types of cancer. The company’s lead drug candidate, ANAVEX®2-73 (blarcamesine), has successfully completed Phase 2 trials in Alzheimer’s disease, Parkinson’s disease dementia, and both Phase 2 and Phase 3 studies in adult patients with Rett syndrome.
Featured Image: Depositphotos @maxkabakov