The Hot-Growth Companies : How Well Do Analysts Predict Their Performance?

We assess several aspects of analysts' forecasting performance for stocks included in Business Week's annual list of 100 “hot-growth” companies. We find that analysts underestimate earnings on average before stocks are included in the list, and that they tend to overestimate them afterward. However, analysts revise their earnings estimates downward after stocks are included in the list, and the largest downward estimate revisions are followed by significant negative stock returns. We conclude that analysts correctly assess the diminished prospects of stocks designated as “hot-growth” companies and that their forecast revisions have significant predictive power and value