Stock price often goes up or down based on whether earnings make the consensus estimates.
But let’s say the entire street is bullish on the stock with a 30% upside on average. Wouldn’t the consensus estimates in that case represent a stock price higher than the current price? In that case, it doesn’t make sense for the stock price to go down if earnings miss, since the consensus estimate is based on a much higher valuation. Can anyone shed light on this to clarify?
Your premise is wrong. Consensus doesn't equal current value of the stock.
consensus prices (i.e. analyst's target price, or "TP") has absolutely zero effect on a stock price, current or future.
i mean sure, you can read the reports and maybe some will have a better thesis than others, but if you're looking to trade and make $ doing so, treat TPs with a lot of skepticism.
sell-side isn't looking out for you.
Consensus estimates are only one driver of a stock's price at a given time. Saying they have zero effect is plain wrong. When analysts raise/lower their estimates and upgrade/downgrade names they absolutely drive movements in the stock. It might be over the short term, and they are obviously taken with a grain of salt, but they are important in setting some sort of standard or expectation quarter to quarter that is publicly available. As for the 30% upside question, that isn't how it works. The purpose of a price target is an opinion that the stock will eventually get there at some point in the future (12-18 months usually) and don't influence the stock price enough to instantaneously bring it there.
OP must be a portfolio manager at a mutual fund
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