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A stock's alpha is an analyst's estimate of its potential price increase based on the rate at which the company's earnings are growing and other aspects of the company's current performance.
For example, if a stock has an alpha of 1.15, that means the analyst expects a 15% price increase in a year when stock prices in general are flat
One investment strategy is to look for stocks whose alphas are high, which means the stocks are undervalued and have the potential to provide a strong return. A stock's alpha is different from its beta, which estimates its price volatility in relation to the market as a whole.
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research