Wall Street Bulls Are Bullish on Roblox (RBLX): Should You Buy?

Investors often rely on recommendations from Wall Street analysts before making a buy, sell or hold decision on a stock. While media reports of rating changes by these analysts employed (or selling) at brokerage firms often influence a stock's price, do they really matter?

Before we discuss the reliability of brokerage recommendations and how you can use them to your advantage, let's see what these Wall Street heavyweights think Roblox (RBLX).

Roblox currently has an average brokerage recommendation (ABR) of 1.88 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on actual recommendations (Buy, Hold, Sell, etc.) from 24 brokerage firms. An ABR of 1.88 is roughly between Strong Buy and Buy.

Of the 24 recommendations that derive the current ABR, 14 are Strong Buy and one is Buy. “Strong Buy” and “Buy” account for 58.3% and 4.2% of all recommendations, respectively.

Brokerage recommendation trends for RBLX

Check Roblox price target and stock forecast here>>>

The ABR suggests buying Roblox, but making an investment decision based on this information alone may not be a good idea. According to several studies, broker recommendations have little to no success in helping investors select stocks with the greatest potential for price appreciation.

Wondering why? Brokerage firms' vested interest in a stock they cover often results in their analysts becoming strongly bullish on that stock. Our research shows that for every Strong Sell recommendation, brokerage firms issue five Strong Buy recommendations.

In other words, their interests don't always align with those of retail investors and rarely provide any indication of where a stock's price might actually go. Therefore, the best use of this information might be to validate your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

Zacks Rank, our proprietary stock rating tool with an impressive, outside-audited track record, categorizes stocks into five groups ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell) and is an effective indicator of a company's performance Share price development in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way to make a profitable investment decision.

Zack's rank should not be confused with ABR

Although both the Zacks Rank and ABR are displayed in a range of 1 to 5, they are different measures overall.

The ABR is calculated exclusively based on broker recommendations and is typically displayed in decimal numbers (example: 1.28). In contrast, the Zacks Rank is a quantitative model that allows investors to harness the power of earnings estimate revisions. The display is in whole numbers – 1 to 5.

The story continues

It was and is the case that the analysts employed by brokerage firms are too optimistic with their recommendations. Because of their employers' self-interest, these analysts issue more favorable ratings than their research would support, which misleads investors far more often than it helps them.

In contrast, the Zacks Rank is determined by earnings estimate revisions. Empirical research shows that near-term stock movements are highly correlated with trends in earnings estimate revisions.

Additionally, the various Zacks Rank ratings are applied proportionally to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool ensures a balance between the five ranks it assigns at all times.

Another key difference between ABR and Zacks Rank is freshness. The ABR is not necessarily current when you look at it. However, because brokerage analysts constantly revise their earnings estimates to reflect a company's changing business trends, and their actions are reflected quickly enough in the Zacks Rank, it is always current to indicate future price movements.

Is RBLX worth investing in?

When it comes to earnings estimate revisions for Roblox, the Zacks Consensus Estimate for the current year remained unchanged at -$1.59 last month.

Analysts' consistent views on the company's earnings outlook, as reflected in an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.

The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, have resulted in Roblox earning a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here >>>>

It may therefore be advisable to be a little cautious when it comes to purchasing equivalent ABR for Roblox.

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