Why does your value differ so much from the price target?

Because we measure something else. A price target contains sentiment, momentum and expectation. Our model contains only cash flows, risk and disclosed assumptions.

How often do price targets hit?

In the study above, a good half of targets were reached at some point within twelve months. The mean error was almost 48%.

Neither alone. Fair value says whether an expectation is backed by cash flows. The price target shows what the market expects. We show both side by side.

Knowledge · Put it in context

Price target vs. fair value: what is the difference?

A price target is an analyst’s forecast of where the price will stand in 12 months. Fair value is an estimate of what the company is worth today. One is a price forecast, the other a valuation.

At a glance

Price targets contain expected price moves, sentiment and momentum. Fair values contain only cash flows and risk.
Price targets are on average optimistic and scatter widely. Studies show they are often missed (see below).
Both can be right: the price can rise to the target although it is above fair value, and vice versa.
This page answers many searches for “stock forecast”: we show how far apart model and consensus can be.

Worked example: four stocks compared

	Price	Consensus target	Our base	Target vs. price	Base vs. price
Tesla	$354.72	$441 (157–840)	$55.7 DCF	+24%	−84%
Alphabet	$283.82	$410.44 (325–485)	$295 SOTP	+45%	+4%
SpaceX	$146.03	$225 (118–450)	$135 SOTP	+54%	−8%
Merck	$145.27	$158.56	$109 DCF	+9%	−25%

All four consensus targets are above the price. Our values are in part clearly below. The reason: a price target also prices in momentum and expectation, a DCF only what can be justified as cash flow. For Tesla the difference lies mostly in option value such as robotaxi and AI (see reverse DCF).

Price, base value and consensus target compared

What does research say about the hit rate?

An international study (Bilinski/Lyssimachou/Walker, 16 countries, 579,497 price targets from 2002 to 2009) found that 55.9% of targets were reached at some point within twelve months (US: 52.9%).
The mean absolute error was 47.7%.
Analysts expected +18.6% on average, while the market rose only +4.1% on average the following year.
The data are older. The pattern, optimism and wide dispersion, has been confirmed repeatedly since.

Accuracy of analyst price targets

What the number does

All four consensus targets lie above the price. That is typical optimism: buy ratings structurally dominate (Alphabet: 71 buy, 1 sell).
A price target shows what analysts expect. A fair value shows what can be calculated. Together they give a better picture than either alone.

Pitfalls

The consensus can be stale. For Porsche SE it dated from Sept 7, i.e. from before the guidance cut.
A median from a very wide range says little. Tesla: $157 to $840.
Buy ratings structurally dominate because analysts have business relationships and access to management. A consensus of “almost all buy” is not independent confirmation.

FAQ

Why does your value differ so much from the price target? Because we measure something else. A price target contains sentiment, momentum and expectation. Our model contains only cash flows, risk and disclosed assumptions.
How often do price targets hit? In the study above, a good half of targets were reached at some point within twelve months. The mean error was almost 48%.
Which is better? Neither alone. Fair value says whether an expectation is backed by cash flows. The price target shows what the market expects. We show both side by side.