While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of The Rubicon Project, Inc. (NYSE:RUBI) soared 15% today after the advertising automation technologist posted strong Q1 results and received a sector perform to outperform upgrade from RBC Capital.
So what: Along with the upgrade, analyst Rohit Kulkarni planted a price target of $19 on the stock, representing about 65% worth of upside to yesterday's close. So while momentum traders might be turned off by Rubicon's sharp pullback in recent weeks, Kulkarni's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.
Now what: According to RBC, Rubicon's risk/reward trade-off is rather attractive at this point. "RUBI posted a strong 'no-surprises' Q1 result, its first earnings out of the gate," noted Kulkarni. "With a 45% correction in RUBI shares since April, and fundamental trends coming in better than expected, we are upgrading the shares of RUBI to Outperform with a $19 PT, as we continue to consider RUBI a best-in-class ad-tech asset." When you couple Rubicon's still-speculative growth trajectory with today's big run-up, however, I'd hold out for a much wider margin of safety before buying into that optimism.
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Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.