Is Canoo (GOEV) a Buy as Wall Street Analysts Are Bullish?

Investors often rely on recommendations from Wall Street analysts before making a buy, sell or hold decision on a stock. While media reports of rating changes by these analysts employed (or selling) at brokerage firms often influence a stock’s price, do they really matter?

Let’s take a look at what these Wall Street heavyweights have to say Canoo Inc. (GOEV) before we discuss the reliability of broker recommendations and how you can use them to your advantage.

Canoo currently has an average brokerage recommendation (ABR) of 1.86 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) from seven brokerage firms. An ABR of 1.86 is roughly between Strong Buy and Buy.

Of the seven recommendations that derive the current ABR, four are Strong Buys, representing 57.1% of all recommendations.

Price target and stock forecast for Canoo can be found here>>>

Although the ABR calls for purchasing Canoo, it may not be advisable to make an investment decision based solely on this information. Multiple studies have shown that broker recommendations have limited or no success in selecting stocks with the best price appreciation potential.

Are you wondering why? Because of brokerage firms’ vested interest in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms give five Strong Buy recommendations for every Strong Sell recommendation.

This means that the interests of these institutions do not always align with those of retail investors and provide little insight into the direction of a stock’s future price performance. Therefore, it is best to use this information to validate your own analysis or a tool that has proven to be extremely effective in predicting stock price movements.

Zacks Rank, our proprietary stock rating tool with an impressive, outside-audited track record of success, categorizes stocks into five groups ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell) and is an effective indicator of a company’s performance Share price development in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way to make a profitable investment decision.

Although both the Zacks Rank and ABR are displayed in a range of 1 to 5, they are different measures overall.

Broker recommendations are the only basis for calculating ABR, which is usually shown in decimal numbers (e.g. 1.28). The Zacks Rank, on the other hand, is a quantitative model that is designed to harness the power of earnings estimate revisions. The display is in whole numbers – 1 to 5.

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