Lesson 2 of 7 · All lessons in this module
- Company research reports and the analysis framework
- Recommendations, target prices and the investment thesis
- The body of the report: business, peers, financials, valuation, risks and ESG
- Sell-side research: audience, constraints and incentives
- Buy-side research, stock screens and activist short sellers
- Hard-to-value stocks and the growth rate implied by the price
- Why analysts disagree: revenue, margins, investment and financing
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 2 of 7 · 12 min
Recommendations, target prices and the investment thesis
A research report opens with a rating backed by a target price and a short investment thesis explaining why the stock is mispriced and which catalysts should close the gap.
In short
- A rating (buy, hold, sell, or overweight, neutral, underweight) summarises the expected share price performance over a stated horizon, usually one to two years.
- The target price implies an expected return: . Ratings may be absolute (on that return) or relative (against a benchmark, sector or the analyst's coverage).
- There is no uniform standard, but buys typically need an expected gain (or outperformance) of at least about 10% to 15%, sells a similar shortfall; holds sit in between.
- The investment thesis condenses why the analyst thinks the stock is mispriced; catalysts are specific events that could move the price toward intrinsic value.
- The first page carries the key facts and summary data, but it is written last. An effective report is timely, clear, objective, internally consistent and discloses conflicts.
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