What Does an Overweight Stock Rating Mean?

An analyst who gives a stock an overweight rating expects the stock’s price to outperform its industry in the future. The rating may be based on a combination of positive news, good earnings, and raised guidance from the company.

Financial analysts give their opinions on the future performance of a stock using a standard formula: they may rate the stock underweight, market perform, or overweight. Some analysts add more tiers or use slightly different terms, such as avoid, hold, buy, and strong buy.

Most online brokers display ratings from several sources on their stock quote pages.

Key Takeaways

• An overweight rating means the stock appears likely to outperform its benchmark industry, in the opinion of the analyst. 
• An underweight rating implies the stock could underperform its benchmark industry.
• A market-perform rating suggests the stock should match the return of its benchmark.

Understanding Stock Ratings

Stock analysts are employed by investment firms to evaluate the financial performance of companies and forecast their future performance for the firm’s clients.

The investment analyst is making a recommendation for the stock, which is typically a buy, sell, or hold recommendation. However, the ratings that stock analysts provide are more involved than simply a buy or sell rating.

Below are the three most common ratings provided by stock analysts.

Overweight

An overweight rating on a stock means that an analyst believes the company’s stock price should perform better in the future. 

That said, the context is important. The analyst is making the recommendation based on an opinion of the stock’s likely performance in comparison with a certain benchmark.  

An overweight rating might be issued based on a benchmark index, such as the S&P 500, which is an index containing 500 of the largest publicly traded companies in the U.S. In this case, an overweight rating on the stock means that it deserves a higher weighting than the benchmark’s current weighting for that stock, in the analyst’s opinion.

For example, Apple Inc. has a weighting in the S&P 500 Index of about 7.1% as of early 2025. That means Apple comprises 7.1% of the total value of the index. An overweight rating on Apple would indicate that the equity analyst believes that Apple should have a higher weighting in the S&P 500.

Underweight

A stock that has an underweight rating means that an equity analyst believes the company’s stock price will not perform as well as the benchmark index being used for comparison. That would mean that the stock deserves a lower weighting than the benchmark’s current weighting for that stock. 

To an investor, the underweight rating is a signal that the stock could generate a below-average return compared to the benchmark.

Equal Weight

A stock that has an equal weight rating means that an equity analyst believes the company’s stock price will perform in line with or similar to the benchmark index being used for comparison.

Overweight and Price Targets

An overweight rating is generally interpreted by market participants as a sign that the company is doing well and its stock price should move higher.

Analysts usually include a price target for the stock, along with a time frame for its price to reach that target.

For example, say a pharmaceutical company’s stock is trading at $100 per share. Then the company announces it has received Food and Drug Administration approval for one of its drugs. The stock price quickly rises 25%. Soon after, an analyst may issue an opinion rating the stock as overweight with a price target of $175 in the next 12 months.

Criticisms of Overweight Ratings

An overweight rating may be one valuable piece of information, among others, that an investor can use to make a buy decision on a stock. It is an informed opinion, no more and no less.

An overweight rating cannot, however, suggest how many or how few shares to buy. An overreaction could tilt the investor’s portfolio out of balance, leaving the investor vulnerable to an unexpected turn of events in the company or the industry it is a part of.

If a stock or its industry currently has a large position within a portfolio and an investor buys more shares based on the overweight rating, the portfolio might no longer be diversified.

An investor whose portfolio is heavy with technology stocks should avoid purchasing an additional technology stock based on an overweight rating. The investor might consider selling another technology holding to make room for an overweight stock.

Special Considerations

An overweight rating might be a short-term trade. Some short-term investors respond to analyst upgrades, forcing a stock higher, at least briefly.

In any case, the investor’s time horizon, including the investor’s age will help determine how long a stock might be held. A retiree might hold a stock for only a few months or years because it may need to be converted to cash at some point. A millennial will have a much longer outlook.

The analyst’s rating needs to be taken into context with the investor’s time horizon, risk tolerance, and how soon the money will be needed.

Example of an Overweight Rating

Analysts may give a stock an overweight rating due to positive earnings and raised guidance.

For example, assume DEF, a technology company, releases its quarterly earnings results and beats its earnings per share and revenue estimates. In addition, the company raises its full-year earnings per share and revenue guidance by 25%.

The stock price rises by 10% after its earnings release, from $80 to $88 per share.

Meanwhile, the technology sector has been underperforming the market and declines by 20% while company DEF’s stock price has increased over the same period.

Since the stock is appreciating while the sector is depreciating, analysts give the stock an overweight and outperform rating with a price target of $150 in the expectation that DEF will outperform the industry.

What Qualifications Do Stock Analysts Have?

Stock analysts usually have an academic background in business, and often have CFA, CPA, or JD designations indicating further study. In recent years, analysts with specialized backgrounds in healthcare, engineering, or technology have been in demand.

Can I Be My Own Stock Analyst?

You can be your own stock analyst if you’re prepared for a deep dive into the intricacies of fundamental analysis or technical analysis. Fundamental analysis relies on a study of the financial numbers available from public companies. Technical analysis involves studying the price movements of a stock over time to identify patterns. Both attempt to predict the direction of the stock’s price in the future.

Do Stock Analysts’ Ratings Move the Market?

Yes. A respected analyst’s decision to rate a stock underweight or overweight can have an impact on a stock’s movement, at least in the short term. It’s yet another of the many variables that determine a stock’s price from moment to moment.

The Bottom Line

An overweight rating on a stock means that a stock analyst has concluded that it is likely to outperform its industry over the coming months. It may be based on a combination of positive news, upbeat comments from company insiders, and research into the current market for the company’s products.

Just remember, it’s a prediction, no more and no less.