Dollarama: How Accurate Were The Analysts?

Approximately one year ago on December 7, 2018, seven brokerages lowered their one-year price targets on Dollarama after the release of quarterly earnings. As the Motley Fool summarized at the time, “results were…disastrous”. Now that a full year has passed, we can now take an objective look at how good these estimates were, summarized in the table below:

The consensus price target on this date was $39.43 and the actual price one year later was $44.53, leaving investors with an average gain of nearly 36%, and an average deviation from their price target of +13%.

I highlight this stock in particular because even though all analysts had downgraded their price targets, the price target itself was still set well above the current share price at the time. This situation is common, unfortunately, as an investor could interpret these updates in two completely different ways. On the one hand they could view it as negative for the stock since the overall price target was lowered. On the other hand, the price target is still well above the current share price, so that implies analysts believe the share price will rise. Which one do you choose?

Unfortunately I do not have the answer, but what I can say is that price targets appear consistently inflated and are poor indicators of the actual share price one year later. I worry about the investor who looks for consensus price targets significantly above the current share price and invests on that basis alone. Doing so is risky and I would caution against this strategy.

What do you think? How should we interpret consensus price targets, and do you include them as part of your investing strategy? Let us know in the comments below, and remember to subscribe to receive instant access to free reports on dividend, value, growth, and contrarian investing.

Happy Investing!