Group Limited (GAMB Free Report) closed the last trading session at $8.27, gaining 8.8% over the past four weeks, but there could be plenty of upside potential in the stock if short-term price targets set by Wall Street analysts are a guide. The average price target of $11.83 indicates an upside potential of 43.1%.

The average estimate includes three short-term price targets with a standard deviation of $1.89. While the lower estimate of $10.50 indicates a 27% increase from the current price level, the more optimistic analyst expects the stock to jump 69.3% to reach $14. It is very important to note the standard deviation here, as it helps to understand the variability of the estimates. The smaller the standard deviation, the greater the agreement between analysts.

Although the consensus price target is a highly coveted metric among investors, it may not be wise at all to rely solely on this metric when making an investment decision. Indeed, the ability and impartiality of analysts to set price targets has long been questionable.

But, for GAMB, an impressive average price target is not the only indicator of potential upside. The strong consensus among analysts on the company’s ability to report better earnings than they earlier predicted reinforces this view. Although a positive trend in earnings estimate revisions is not a gauge of how much a stock might gain, it has proven powerful in predicting upside.

Price, Consensus and EPS Surprise

Here’s what you need to know about analyst price targets

According to researchers from several universities around the world, a price target is one of many pieces of information about a stock that misleads investors far more often than it guides them. In fact, empirical research shows that the price targets set by many analysts, regardless of the degree of agreement, rarely indicate where a stock’s price might actually be headed.

While Wall Street analysts have a deep understanding of a company’s fundamentals and how sensitive its business is to economic and industry issues, many of them tend to set price targets that are overly optimistic. You wonder why ?

They typically do this to generate interest in the stocks of companies with which their companies have existing business relationships or with which they are seeking to associate. In other words, trading incentives from companies covering a stock often result in inflated price targets set by analysts.

However, a tight grouping of price targets, which is represented by a low standard deviation, indicates that analysts have a high degree of agreement about the direction and magnitude of a stock’s price movement. Although this does not necessarily mean that the stock will reach the average price target, it could be a good starting point for further research aimed at identifying potential fundamental driving forces.

That said, while investors shouldn’t ignore price targets entirely, making an investment decision based solely on them could result in a disappointing return on investment. Thus, price targets should always be treated with a high degree of skepticism.

Why GAMB could see a solid rise

Analysts’ growing optimism about the company’s earnings outlook, as indicated by the strong agreement among them to revise EPS estimates upwards, could be a legitimate reason to expect the stock to rise. Indeed, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

The Zacks consensus estimate for the current year has risen 36.4% over the past month as one estimate rose relative to no negative revision.

Additionally, GAMB currently has a Zacks Rank #2 (Buy), meaning it is in the top 20% of over 4,000 stocks that we rank based on four factors related to earnings estimates. Given an impressive externally audited track record, this is a more conclusive indication of the stock’s upside potential in the near term. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>

Therefore, while the consensus price target may not be a reliable indicator of what GAMB might gain, the direction of price movement it implies seems to be a good guide.