Security Analyst – Definition

Cite this article as:"Security Analyst – Definition," in The Business Professor, updated September 9, 2019, last accessed August 3, 2020,


Security Analyst Definition

A security analyst is a financial professional who is professionally trained to evaluate market security, study different industries and firms, valuate industry inevitability, provide trading recommendations, and provide holding recommendations for investments portfolio using market research.

A Little More on What is Security Analysts

Professionally trained security analysts follow and study the performance of stocks, different sectors and industries, firms, and various national economy. This professional analyses anything that can be labeled as security in investments. However, in defining security, one must take into account the rate by which third parties influence their performance. This influence by third parties, which is absent in futures contracts is a reason why it isn’t termed a “security” and thus not analyzed by these professionals. Options, on the other hand, are analyzed since their performance is partly dependent on externalities.

Security analysts make use of different tools, methods, and strategies in creating valid reports. These reports are aimed at helping institutional investors, firms, and banks make the best investment moves to maximize profit. Most clients pay large sums to be able to access these reports as they have a higher tendency of being right compared to personal self-trading analysis. Security analysts make use of fundamental and technical analysis in deterring the pattern of a market or an economy. When using fundamental analysis, the analyst focuses on financial statements, rate of unemployment, and other monetary reports. Technical analysis, on the other hand, allows him to determine market price trends and momentum.

These professionals engage in the herculean task of collecting and interpreting financial statements in order to predict the next direction of the market. These financial reports are sourced from a number of databases like the EDGAR (Electronic Data Gathering, Analysis, and Retrieval), from financial magazines, and by peer-to-peer sharing between two analysts. Security analysts make use of these reports to determine the financial credibility of a sector or company so as to avoid bad trades and lock in excess returns by investing in profitable firms or sectors.

Aside from analyzing securities to create reports, security analysts sometimes can be tasked with creating earnings estimates for a firm’s future earnings per shares (EPS). These estimates can be valid for six months or for a full year, depending on how long the employer wants it to be. Using his analysis, the analyst can create an estimate of fair value for a company stock, which in turn creates a target share price. The estimates from security analysts are used as consensus estimates (future predictability of the company’s performances) which are used as a target for the firm’s performances. In a case where the performance of a firm surpasses the consensus estimate or goes below it, investor refers to this performance as an earnings surprise.

Professionals in this field are great when it comes to spreadsheets, and they have different skills that help them prepare the best financial reports. Security analysts are expected to be able to interpret data not only by themselves but to clients, peers, and the management under which they work. Most of these analysts work in investment banks, private equity firms, hedge funds, venture companies, and research firms. Their knowledge of sector and company analysis make them a crucial part of mergers, acquisitions, restructuring, bankruptcy, and any other process which has an influence over a company financially. An undergraduate degree in finance will get you past the door, but it is important to build your knowledge by taking certain certifications in the financial markets.

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