What is an analyst rating, and should I care about it?

Analysts at investment banks and research firms follow specific companies, build financial models and publish a rating: usually buy, hold or sell, with variations like "outperform" and "overweight" that mean the same things. When one changes their rating, it is an upgrade or downgrade, and it often moves the stock a few percent that day.

Should you care? A little, as information, and not much as instruction. The good analysts know their companies in real depth, and reading their reasoning can teach you what matters in an industry. But the ratings themselves skew heavily positive; "sell" ratings are rare because banks want to keep relationships with the companies they cover. And studies of rating changes find they have modest predictive value beyond the first few days.

The consensus, the average of all the ratings on a stock, is a decent snapshot of professional opinion. What it cannot tell you is whether that opinion is already in the price, which it usually is.

A practical use: when a stock you own drops 5 percent on a downgrade, read why. If the analyst raised a concern you had not considered, that is useful. If they simply lowered a price target after the stock fell, that is noise.