Either the analysts got the components wrong or the Russell 2000 rose 21%

The financial media love to get expert predictions about where they think they are going for a given stock index. Some experts examine technical analysis models, others examine valuation metrics, others apply a holistic macro view of the economy. In this article, we present another forecasting approach that investors may find interesting. Any given index is actually a collection of individual stocks, each with a specified weight applied to the total. For each of these individual stocks, analysts are working hard to study the company in depth and then come up with a 12-month price target. When multiple analysts publish a target, we can calculate an average target.

But when it comes to the Russell 2000, we can take this exercise one step further, comparing the current share price of an individual component to its average analyst target, in order to calculate the upside potential between the price. current action and goal. And then, by doing the same exercise for each component, we can see what analysts as a group think of the overall index itself. This represents an effort of “wisdom of the crowds”, for so many individual spirits have contributed to the ultimate number, contrary to what one particular expert believes. At ETF Channel, we performed this exercise for all individual constituents of the iShares Russell 2000 ETF (ticker: IWM) and then we weighted the results together to determine the implied average analyst target for the ETF itself. For the iShares Russell 2000 ETF, we found that the implied analyst target price for the ETF based on its underlying holdings is $ 280.89 per unit.

With IWM trading at a recent price close to $ 232.72 per unit, that means analysts are seeing a 20.70% rise for this ETF taking into account analysts’ average targets for the underlying holdings. Mustang Bio Inc (symbol: MBIO), CorMedix Inc (symbol: CRMD) and Infinity Pharmaceuticals Inc (symbol: INFI). Although MBIO recently traded at a price of $ 2.27 / share, the average analyst target is 331.72% higher at $ 9.80 / share. Likewise, CRMD is up 328.85% from the recent share price of $ 5.13 if the average analyst target price of $ 22.00 / share is reached, and analysts expect in average for INFI to hit a target price of $ 9.29 / share, or 307.24% above the recent price of $ 2.28. Below is a 12-month price history chart comparing the performance of MBIO, CRMD and INFI stocks:

Below is a summary table of the analysts’ current target prices discussed above:

name symbol Recent price Avg. 12-Mo analyst. Target % increase over target
IShares Russell 2000 ETF IWM $ 232.72 $ 280.89 20.70%
Mustang Bio Inc MBIO $ 2.27 $ 9.80 331.72%
CorMedix Inc CRMD $ 5.13 $ 22.00 328.85%
Infinity Pharmaceuticals Inc INFI $ 2.28 $ 9.29 307.24%

Are analysts justified in these goals, or overly optimistic about where these stocks will trade in 12 months? Do analysts have a valid rationale for their goals or are they lagging behind recent business and industry developments? A high price target relative to a stock’s price may reflect optimism about the future, but can also be a harbinger of price declines if the targets were a relic of the past. These are questions that require further research from investors.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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Richard V. Johnson