Sentiment Index
The analysts’ ratings tell you a lot about the market’s expectations for the company. For instance, you’d interpret the information differently if 20 out of the 29 analysts covering Lucent said strong buy, instead of only 3 advising buying Lucent’s shares.
I devised a rule of thumb for using the analysts’ ratings to gauge the market’s enthusiasm, or excitement for a stock, at least from the analysts’ perspective. I call it the Sentiment Index. You calculate the Sentiment Index by adding points for strong buy ratings and subtracting points for holds and sells. Regular buys are ignored.
Sentiment Index
Strong buy: Add the number of “strong buy” ratings.
Buy: Ignore.
Hold, sell, and strong sell: Subtract a point for each of these ...
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