Wall Street’s bearish price targets for the stocks in this article signal serious concerns. Such forecasts are uncommon in an industry where maintaining cordial corporate relationships often trumps delivering the hard truth.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. That said, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Wayfair (W)
Consensus Price Target: $114.21 (-3.3% implied return)
Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Does W Give Us Pause?
- Value proposition isn’t resonating strongly as its active customers averaged 1.8% drops over the last two years
- Anticipated sales growth of 5.2% for the next year implies demand will be shaky
- Gross margin of 30.2% reflects its high servicing costs
At $118.08 per share, Wayfair trades at 21.8x forward EV/EBITDA. Read our free research report to see why you should think twice about including W in your portfolio.
Dollar General (DG)
Consensus Price Target: $138.43 (-9.6% implied return)
Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Why Are We Wary of DG?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 30% is below its competitors, leaving less money for marketing and promotions
- Earnings per share have dipped by 17.4% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Dollar General’s stock price of $153.19 implies a valuation ratio of 21.7x forward P/E. Check out our free in-depth research report to learn more about why DG doesn’t pass our bar.
Ducommun (DCO)
Consensus Price Target: $111.40 (-2.2% implied return)
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Do We Think Twice About DCO?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 4.8% for the past two years was weak
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 12.2 percentage points
- ROIC of 2.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Ducommun is trading at $113.88 per share, or 26.7x forward P/E. Read our free research report to see why you should think twice about including DCO in your portfolio.
High-Quality Stocks for All Market Conditions
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