What is 'Strong Buy'

A strong buy is a type of recommendation given by analysts for a stock that is expected to dramatically outperform the average market return and/or the return of comparable stocks in the same sector or industry. It represents an analyst's emphatic endorsement of a stock.

BREAKING DOWN 'Strong Buy'

A stock with a "strong buy" rating is expected to significantly outperform the markets over the near-term. A strong buy is the strongest recommendation that an analyst can give to purchase a stock. As with any type of analyst rating, the rating is only relevant until a material event occurs that results in the analyst changing his or her outlook regarding the company. A 'strong buy' means the analyst believes the stock's underlying company is or will soon be experiencing positive financial performance and/or favorable market conditions.

A strong buy rating indicates an analyst has reason to believe the stock will trade drastically higher over the coming months. What exactly those reasons are can vary drastically, but in general, the analyst usually predicts the potential gain in anticipation of some sort of positive event, such as a return to profitability or the launch of a new product. A strong buy writing is usually accompanied by an extremely optimistic price target on the stock, such as a 30 to 50 percent gain over the coming 12 months. 

The strong buy rating isn't nearly as highly regarded as it was only a few years ago. As such, many investment banks currently prefer to stick with the less emotive buy rating. 

Possible Reasons for Strong Buy Recommendations

  • Share price appreciation: When a company’s share price trend shows an impressive run, analysts search for reasons that contribute to that run, and if they find that those reasons point to continued strong performance, they may be motivated to issue a strong buy recommendation.
  • Estimate revisions: When a company adjusts their revenue estimates for a given time period to indicate stronger expected performance, analysts may echo that sentiment by resetting their recommendation on the stock to a strong buy.
  • A history of positive earnings surprises: If a company has a strong track record of outperforming its own performance forecasts, analysts may regard a stock as a superior option compared to competitors, which would make a strong buy rating appropriate.
  • Strong growth prospects: If a company does business in a strong industry and they're predicting strong growth, that can be a reason for a strong buy recommendation.
  • Growth drivers: If a company makes or contributes to significant technological advancements in a sector, that can earn an analyst's respect and a subsequent strong buy rating.

 

RELATED TERMS
  1. Security Analyst

    A security analyst is a financial professional who studies various ...
  2. Investment Analyst

    An investment analyst is a financial professional with expertise ...
  3. Research Report

    A document prepared by an analyst or strategist who is a part ...
  4. Analyst Meeting

    An analyst meeting is an annual event hosted by public companies ...
  5. Price Target

    1. A projected price level as stated by an investment analyst ...
  6. Peer Perform

    Peer Perform is a stock rating used by analysts that roughly ...
Related Articles
  1. Investing

    Understanding analyst ratings

    Discover whether analyst recommendations are really worth listening to.
  2. Investing

    Find Hidden Stock Gems That Analysts Ignore

    Just because it doesn't get a lot of coverage, doesn't mean a company isn't a great find.
  3. Financial Advisor

    Becoming a financial analyst

    Understand the types of career paths you can take as a financial analyst and learn the education and skills you need to launch a career in this field.
  4. Investing

    Stock analysts say a lot, but should you listen?

    If you want to find out which analysts are worth following, you shouldn't take their word for it.
  5. Financial Advisor

    Career advice: Financial analyst versus research analyst

    Read an in-depth comparison between a career as a financial analyst and a career as a research analyst, including advice on which one to choose.
  6. Investing

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Investing

    3 Suggestions Before Reading Analyst Stock Recommendation

    Discover the true motivations and priorities of sell-side analysts and why individual investors should ignore consensus estimates for earnings and revenues.
  8. Personal Finance

    Career advice: Financial analyst versus equity analyst

    Understand the subtle distinctions between financial analysts and equity analysts, and learn the pros and cons of each career.
  9. Investing

    Surprising Earnings Results

    Consensus estimates can send stocks spiraling - but are they representing reality?
  10. Investing

    Become Your Own Stock Analyst

    Learn how to do your own stock analysis and become a wiser investor.
RELATED FAQS
  1. What kinds of financial analysis jobs are there?

    Read about some of the different types of financial analysts, including those considered to be on the buy side and those ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center