What is a stock rating?
A stock rating is a short mark that sums up research on a stock: a word such as buy or hold, a letter from A to F, a number of stars, or a score. It exists so a reader can compare many stocks without reading the research behind each one. Three kinds cover most of what investors see: analyst ratings, letter grades, and quant scores.
Analyst ratings: buy, hold, sell, and overweight
An analyst rating is the view of an analyst at a bank or a brokerage who follows a group of companies. The words vary by firm. Buy, outperform, and overweight say the analyst expects the stock to do better than the stocks it is measured against (usually its industry or an index). Hold, neutral, and equal weight say about the same. Sell, underperform, and underweight say worse.
Most come with a price target, the price the analyst expects in about a year. A consensus rating is the average of every analyst who covers the stock. Sell ratings are rare: far more stocks carry a buy or a hold. The analyst's firm may also do business with the company it rates, which its reports must disclose.
Letter grades: how stock grading systems work
Some research firms grade stocks from A to F: overall, or on separate traits such as value, growth, profit, and momentum. A grade is most often a rank: an A means the stock sits near the top of the stocks it is compared with on that measure, not that it passed a fixed test. Because grades are relative, a stock's grade can change when other stocks change, even if its numbers did not.
Quant scores and ranks
A quant score is built by a formula, with no analyst's judgment on the single stock. The same measures are read for every stock and turned into points or a percentile, then added up. Many systems sort the result into five ranks or ten groups. Because the formula is fixed, its record can be checked: how the stocks it ranked highest did afterward, against all the others.
Ratings vs price targets
A rating compares a stock with others; a price target names one price, usually a year out. The two can disagree: a stock can carry a hold rating with a target above today's price. Neither is a promise, and both change as the analyst's view changes.
Where the Quality Score fits
Breakaway's Quality Score is a quant score. One formula reads every US stock that trades enough: the chart, the company's financials, its news, and the trades of its insiders and of government officials. It runs every 15 seconds while the market is open and puts a plain word on the total. Exceptional is 20 and up, Excellent 15 to 19, Above Average 11 to 14, Average 6 to 10, Below Average 0 to 5, and Poor below zero.
Every stock's page shows the score part by part, with the evidence behind each point, and the score's record is kept in the open on the page How the Quality Score was tested.
How to read any rating
Ask four questions of any rating. What does it measure? How often does it change? Who made it, and are they paid by the company? Is its record published? A rating sums up the past and the present. It is information, not advice, and it is never a promise about the price.