Investors can tap into the expertise of the financial analyst community to determine when and where investment opportunities arise. Financial analysts are similarly able to uncover situations when an investment is out of favor. The process is quite streamlined, and security analysts adhere to a straightforward rating system that reveals their opinion about an investment. One of the most severe ratings that can be assigned to a stock is a strong sell, which trumps a mere "sell" rating, and it indicates that investors should quickly get out of a particular investment.
Financial analysts are grouped on either the buy side or the sell side of the markets. Sell side analysts cater specifically to investors and perform extensive research based on a company's assets, liabilities, growth potential and more in order to determine the grade that a potential investment deserves. The primary ratings are "buy," "sell" and "hold," and as the names suggest, these opinions offer a glimpse into what type of activity to expect in a stock.
When an analyst places an adjective ahead of the rating, such as "strong sell," this underscores the urgency in the assigned rating. A strong sell rating is a harbinger of dismal performance and anticipated losses that are expected from investment. This rating is an indication that a security such as a stock probably is going to underperform either the broader financial markets, its peers — which are stocks that trade in a similar sector or category — or both. There is a negative implication, and investors who do not heed the warning could lose money. Security analysts in the financial markets are not always right, but there must be good reason for them to suggest that investors flee an investment with such urgency.
The impetus for a strong sell rating could be one of many things or a combination of events. An executive management shakeup, for instance, communicates uncertainty to investors, and the markets typically do not support unexpected change. Another possible scenario that could prompt an analyst to assign a negative rating to a stock is a lack of corporate growth plans that would outline to investors a company's plans for increased revenue opportunities. If a company is not optimizing its growth potential, the analyst community will not look favorably on that investment.
After a rating such as a strong sell is given to a stock, that grade can be changed. The analyst typically will issue a report that is either an upgrade or a downgrade of a previous rating. In the case of a strong sell rating, the analyst can only become more positive, and potential subsequent ratings could be a mere "sell," a "hold" or even a "buy" rating at some point in time.