Average Qualitative Opinion (AQO)

Average Qualitative Opinion (AQO) summarizes investment analysts' ratings for a particular security. It also is akin to an average analyst opinion.

In some circles, the AQU is either buy, hold or sell, based on the average rating from analysts covering a security. In others, it is strictly a numerical way to express those same opinions, with a rating of one perhaps reflecting a buy, two a hold and three a sell.

Either way, the AQO attempts to encapsulate all of the information contained in an analyst report, including a company's financials, industry financials and the security's target price for the next 12 to 24 months, and convey that information as a consensus recommendation for investors.

The AQO is not to be confused with either consensus earnings estimates, or consensus price targets, each of which attempts to aggregate those respective analyst opinions.

Average Qualitative Opinion (AQO) is helpful to investors in several different situations. Knowing the collective opinion about a particular security can be somewhat helpful in making buy and sell decisions at times. However, few investors make decisions solely based on the opinions of analysts as a group.

Analysts provide a valuable service that saves investors time and provides them with expert insights. However, investors still must exercise judgment in considering AQOs and other investment research that is aimed at a broad audience and doesn't reflect an individual investor's goals, time horizon or risk tolerance.

In particular, contrarian investors find the AQO to be helpful. This group looks for opportunities to profit by making decisions that are different than those of the crowd. They like to buy when others are selling, or sell when others are buying, and when they believe the collective market opinion regarding a security may soon change.

For instance, contrarians seek situations where the price of a stock is technically overbought, the AQO is exceptionally positive, and there is new, somewhat undigested negative news about the stock that could cause the underlying company difficulties for some time. A contrarian is likely to short the stock in this situation, and, in some cases, also go long its main competitor.

Conversely, contrarians often pounce when the collective opinion of analysts is exceptionally negative on a particular investment. In such a situation, they tend to buy on speculation, based either on a technical pattern that suggests a possible reversal to the upside, or some fundamental news they believe could benefit the company.

Other than contrarians, few other types of investors tend to use the AQO as the basis of their decision-making, believing that the collective opinion of analysts tends to skew too positive. Many find the AQO less predictive than analysts’ consensus opinions regarding a company’s future earnings and sales.