Can more analyst coverage help predict stock performance?
Our alpha model suggests it might.
Published October 31 2025
On the MDT quant team, we cast our net far and wide to try to discover underexplored factors that might help us forecast equity outperformance. These factors may sometimes appear only loosely related to company performance, yet we believe some of our best ideas have come from seemingly extrinsic considerations. Previously, for instance, we’ve written about company age and company moats as two factors we view as being able to help predict performance. Another such factor is analyst coverage.
In 2016, academic researchers Charles M. C. Lee and Eric C. So found that companies with abnormally high analyst coverage outperformed those with abnormally low coverage. But why should something seemingly so simple make any difference, especially considering that a count of analysts doesn’t even consider whether that coverage is positive, neutral, or negative?
Our own research, which builds on that of Lee and So, shows that analysts often have their own motivations in covering companies. More often than not, their coverage coalesces around factors that have been seen to promote share price growth. This means that, by and large, they tend to cover companies they believe are more likely to go up than down. If they can latch on to winners, analysts will be able to enjoy good relationships with company managers. If companies disappoint, analysts eventually tend to drop coverage rather than persistently criticize them. They may not wish to jeopardize investment banking relationships—even where institutional buffers offer protection—or they may simply prefer to tell upbeat stories.
A key principle of our decision-tree-based stock forecasting model is that the most important aspect of a factor is how it helps us explain returns in the context of all of our other factors. Accordingly, closer research helped us uncover a relationship between analyst coverage and our price-based factors. Our model has found that for companies with share prices that are deeply depressed, future outcomes have been strongly positively related to analyst coverage. If the analyst community sticks with a company through a rough patch, that may be a good sign about the prospects for that company’s share price recovering.
However, amongst momentum stocks we have seen a different behavior. The future performance of a stock with strong recent returns has tended to be even higher if that stock is relatively undiscovered by the professional analyst community. And so, once again, we believe the decision tree framework is able to discover intuitive, but difficult to predict ex-ante, drivers of potential returns.