How do companies determine target price?
A stock’s price target is the price at which analysts consider it to be fairly valued with respect to both its projected earnings and historical earnings. Analysts will typically set price targets that correspond to their buy or sell recommendations.
Price targets are significant because they help traders understand when to buy a stock as well as when to sell it. When an analyst raises their price target for a stock, it’s an indication that they expect the stock price to rise. Lowering their price target is an indication that they expect the stock price to fall. Analysts may use different time frames when setting a price target, although most will time their price targets to a one-year or 18-month period. Therefore, investors should set their own price target when determining when to enter and/or exit a trade.