Here's Why Price Targets are Bogus

Let’s talk about price targets. You know, those neat little numbers analysts put out to tell you where a stock should be trading in 12 months. “Buy this stock, our price target is 180!” sounds exciting, right? Until you realize these targets are about as meaningful as trying to forecast next year’s avocado prices using a crystal ball and yesterday’s weather report.

Who benefits from price targets?

Here’s the truth: price targets exist primarily to generate trading activity. And who benefits from more trading? That’s right—brokers, investment banks, and financial media. Every time you buy or sell based on some new “revised target,” someone collects a fee. Spoiler alert: it’s not you.

For a long-term investor, price targets are not just useless—they’re actively misleading. They make it sound like investing is about buying something low, then selling it once it hits that arbitrary number. But that’s not investing. That’s trading dressed up in a suit. Let me explain:

Meet your brother, the farmer

Imagine your brother owns a farm. You walk up to him one day and say, “Hey, what’s the price target for your farm?”

He blinks. “What?”

“You know, like, how much do you think the farm will be worth in a year?”

He still doesn’t get it. Why? Because he’s not planning to sell the farm. The farm gives him a yield—crops, milk, whatever—year after year. It’s his productive asset. He doesn’t care about flipping it next summer.

Then you say, “Yeah, but if someone offers you the fair value, you should sell, right?”
He laughs. “Why would I sell the goose that lays the golden eggs?”

Exactly. That’s the investing mindset.

Fair value ≠ sell signal

Let’s say a stock hits its “price target.” The usual conclusion is: time to sell! But that’s a complete misunderstanding of what fair value means.

If a company trades at fair value, it doesn’t mean there’s no return left. It means you’ll earn exactly the discount rate which you used in your DCF to value it. Think of it like owning a bond: the price may not go anywhere, but the yield keeps compounding.

If you buy a quality business at fair value and hold it, you capture the ongoing returns generated by the business itself—through retained earnings, reinvestment, and growth. That’s how wealth is built.

But if you treat stocks like collectibles you flip when they hit a sticker price… good luck compounding anything.

The static price target fallacy

Another reason price targets are flawed: they’re static snapshots in a dynamic world.

Every day you roll the discounted cash flow (DCF) model one day forward, the fair value increases by the discount rate. That’s math. So even if a stock “hits” its target today, tomorrow the target’s already higher. How much higher? Well exactly by the rate of return you plug into your DCF!

It’s like chasing a bus that drives at a constant speed. You catch up, celebrate… and then realize the bus just kept driving. So the whole price target bogus is not only misleading, it’s mathematically inconsistent.

What is more: DCFs underestimates real quality companies

Most DCFs are conservative by design. They assume a modest terminal growth rate—say 2% or 3%. That’s fine for modeling, but it seriously underrepresents companies with real staying power.

Quality businesses—those with network effects, scale advantages, brand power, or a flywheel effect—often grow faster and longer than expected and your “terminal value” calculation is way off. If you anchor on a DCF-based price target, you might exit too soon, long before the real compounding magic happens.

Worse, you might sell a great company trading at “only” fair value, while chasing some garbage stocks that looks “cheap” but are cheap for a reason.

Conclusion: Be the farmer

So, here’s the takeaway. Ditch the price target obsession. Be the farmer, not the flipper. Buy quality businesses at fair value and let them work for you. Reinvest the dividends. Let compounding do its thing.

You don’t earn money by buying “cheap” stocks and wait until they reached their “price target”. Real investing is about buying quality stocks at fair value and earning the yield which they produce.

And the next time someone says, “The stock has hit our price target,” just smile and say: “That’s cute.”